Bank of England unlikely to tighten monetary policy until November

BoE Governor Mark Carney and other MPC members, today at Inflation Report hearing, repeated their main message that limited and gradual monetary policy tightening is expected in the forecast horizon. There was a change in MPC tone noted since February, when they struck a more hawkish note by saying that Bank Rate would have to hike by more than financial markets had expected in November. The policy makers acknowledged that in the past three months, the U.K. economy has not evolved in like with their forecasts.

Economic growth in the first quarter of just 0.1 percent quarter-on-quarter was considerably below their expected 0.4 percent quarter-on-quarter pace giving the committee some pause for thought, noted Daiwa Capital Market Research. But given that they linked the weakness mainly to harsh weather conditions, their assessment is that growth would rebound in the near term and drive domestic inflationary pressures higher. So with a policy tightening this year remaining strongly on the cards, the market reaction to today’s testimony was positive, although there was no considerable shift in markets’ suggested path of future interest rates.

“We too maintain our view that the MPC will refrain from tightening monetary policy until November, until we have got more certainty about Brexit and the medium-term outlook for the economy”, added Daiwa Capital Market Research.

At 18:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bearish at -126.105, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -21.8127. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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