Bank of England Keeps Rates Unchanged at Record Low

The Bank of England (BOE) Monetary Policy Committee (MPC) left interest rates unchanged and QE on hold with a vote of 6-2 Thursday. The British pound fell 120 pips on the news.

The Bank of England (BOE) Monetary Policy Committee (MPC) left interest rates unchanged and QE on hold with a vote of 6-2 Thursday. The British pound fell 120 pips on the news. 

The central bank is concerned about the “sluggish” economy and uncertainty of Brexit and cut its annual growth estimate for 2017 to 1.7 per cent from 1.9 per cent previously, and for 2018 to 1.6 per cent from 1.7 per cent.

  • Bank rate 0.25% as prev
  • Asset purchase target GBP 435bln
  • Vote 6-2 vs 6-2 prev

BoE Minutes

  • MPC now expect two rather than one hike over forecast horizon
  • Currency depreciation effect seen having continued upward influence on inflation
  • Brexit – expecting smooth transition
  •  6-2 for unchanged rates & 8-0 for unchanged QE at GBP435B
  • TFS to be discontinued end of Feb 2018 (8-0)
  • Household consumption could be higher than assumed in May Report
  • Global economic buoyancy offsetting domestic uncertainty
  • Trade off is seen eliminated over forecast horizon

There had been some that had expected a rate rise which had fueled a steady climb in the pound leading up to it. This was based on inflation picking up to to 2.9 per cent in May, well above the bank’s target of two per cent. The rate pulled back to 2.6 per cent in June however.

Earlier on Thursday the Markit/CIPS services purchasing managers’ index (PMI) rose slightly to 53.8 points, from a four-month low of 53.4 in June.  The service sector is the dominant sector in the U.K. economy, much like the U.S. Clearly  Britain’s economy is struggling for momentum after its slowest start in five years which worries the BoE.

Tuesday the Bank had the manufacturing sector and a weak construction report on Wednesday. Together the economy is growing at a “steady but sluggish” quarterly rate of 0.3 per cent according to IHS Markit.

Keeping rates low and their currency competitive with the Euro also helps the U.K. moving forward. This is inline with a dovish ECB and Draghi, another recent why a no change was expected by the seasoned traders.

From The Traders Community News Desk 

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