Bank of England likely to keep monetary policy on hold for now – Lloyds Bank

The Bank of England kept its policy on hold during its August meeting, leaving the bank rate at 0.25 percent. Also, it made no changes to the Asset Purchase Scheme. The voting pattern indicated a less hawkish split of 6-2 in favour of keeping Bank Rate unchanged relative to the 5-3 vote at the earlier meeting in June.

Meanwhile, the inflation report projections included a downward revision to the growth profile. GDP growth for this year was lowered to 1.7 percent from May’s 1.9 percent, greatly reflecting the weaker start to activity in 2017 after the 0.2 percent and 0.3 percent rise in the first quarter and second quarter output respectively.

The BoE expects growth in the first quarter to be upwardly revised to 0.4 percent eventually; however, this would still be below the 0.5 percent assumed in February. The near-term profile for CPI inflation projections over the forecast horizon were widely unchanged. The near-term profile for CPI inflation was upwardly revised and embodies a peak of about 3 percent in October with inflation at the two-year and three-year horizon continuing to show an overshoot to the 2 percent target.

With these projections conditioned on the assumption that the U.K.’s exit from EU would undergo a smooth transition process, the central bank continues to imply that were the economy to evolve as the committee anticipated, policy might need to tighten by more than the market currently expects, noted Lloyds Bank in a research report.

“At the time that the forecasts were made, the yield curve implied only two quarter-point hikes in interest rates over the next three years”, added Lloyds Bank.

At 23:00 GMT the FxWirePro's Hourly Strength Index of British Pound was bearish at -75.4743, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 47.7077. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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