The Bank of England leave rate unchanged as some investors expected a hike
(Kitco News) - The Bank of England kept rates on hold 7-2 vote split. Big surprise for investors, many of whom had assumed it would hike rates. QE carries on as planned (up to £895bn). Inflation is now forecast to touch 5% next year. GDP forecast cut by 1pp. Waiting for new data seems to be the rhetoric.
The BoE did say the rate will have to rise over the coming months to meet the bank's targets. They also said "We expect inflation to fall back from the middle of next year, and to be close to our target in two years' time."
Prior to the announcements, these were the latest developments from the BoE. BoE''s Bailey has made intentions clear. The signal was to act if inflation moved above the target rate. The question is whether Broadbent & Cunliffe side with the core MPC or external members. Lastly, market participants appear split on the hike vs no hike debate, yet unanimous on hawkish disappointment call.
Lloyds Bank noted "Speculation is rampant that the Bank of England will hike interest rates today, with markets already discounting a 15bps increase to 0.25%. Expectations have been fuelled in large part by hawkish comments from Governor Bailey and Chief Economist Pill that some action is likely required in response to the ongoing rise in inflationary pressures.".
The latest PMI reports noted the fact that cost pressures had been increasing. Although the numbers themselves were not bad, cost pressures meant that the producers could not keep up with demand and needed to hand over price hikes to consumers.
GBP/USD reacted heavily to the news as some traders and investorsexpected a move up in rates. Cable is now down nearly 1% on the session and thenext support on the daily chart resides at 1.3412.
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