Pound jumps as BoE prepares market for a hike

Though rates were kept unchanged at today’s meeting, Bank of England (BoE) delivered its strongest signal yet that a rate hike preparation could be under way. Today, the central bank voted 7-2 in favor keeping interest rates at 25 basis points. “The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.  At its meeting ending on 13 September 2017, the MPC voted by a majority of 7-2 to maintain Bank Rate at 0.25%.  The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion.  The Committee voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.”

Sterling went upbeat after a rare interest rate guidance from the central bank. Here is the line, “A majority of MPC members judge that, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure then, with the further lessening in the trade-off that this would imply, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target.”

Since the Brexit referendum, despite some softening numbers on the housing front, the weaker pound has led to higher than expected inflation in the United Kingdom. According to the latest report, the CPI inflation remains at 2.9 percent, with core inflation at 2.7 percent; both are above the central bank’s target of 2 percent.

The pound has jumped more than 100 pips and is currently trading at 1.33 against the dollar.