2-0-7 - something new for the BOE

2-0-7 - something new for the BOE

The Bank of England released an interest rate. As expected, it was left on hold at 0.5%. However, this time votes were divided: 7 members voted to keep the rate unchanged when 2 voted to hike. It can signal the rate increase in May. Moreover, the governor Mark Carney said that the prospects of excess demand over the forecast period, an ongoing tightening of monetary policy can support the inflation return to its target.

However, the statement contained mixed data. Let’s see.

  • CPI inflation fell from 3.0% to 2.7% in February. And it is supposed to fall further, but it will stay above 2.0%.
  • Pay growth continued to increase. And it is anticipated to rise further based on the tightening labor market. So growth in wages and unit labor costs will rise in the future.
  • The unemployment rate stayed low.
  • US GDP growth was weaker in the fourth quarter but the central bank sees indicators of exports and investment point to a stronger picture.
  • Carney did not leave Brexit negotiations out of attention. According to the BOE’s release, Brexit will stay a source of uncertainty, weighing on households, businesses and asset prices.

Although we can anticipate a tighter monetary policy and soon rate hike, the Governor said nothing concrete. The statement was quite vague. Furthermore, investors anticipated the rate hike in May, so it did not become a surprise. As a result, the pound has weakened. If the greenback is able to recover, the sterling will fall further. The support lies at 1.4070.

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