At 13:00 Bank of England (BoE) officially concluded meeting of the monetary policy, keeping interest rates and the level of the asset purchase program unchanged. At the same time the central bank published updated economic forecasts and the minutes of the meeting. Below a summary and the response of pound sterling.
MPC unanimously makes no change in polmon
Monetary Policy Committee unanimously (9-0) decided to keep its key rate at 0.25%, and buying into QE at an altitude of 435 billion pounds.
Full content of the summary meeting of the monetary policy, together with the MPC minutes are available directly on the bank site. Below we present the most important headlines:
- The value of GBP is 18% below the peaks of November 2016, reflecting investors’ uncertainty and the belief that the cheaper pound will be helpful in the process of exit from the EU
- Cheaper GBP, however, will support in the coming years beating inflation target of 2%, which can be seen after the current publications (December inflation rose to 1.6%)
- MPC is concerned about excessive inflation and if the risk actually appears then you will need to take additional action
- Monetary policy alone will not deal with problems facing the UK – the full effect of cheaper sterling on inflation will be achievable only with an increase in unemployment and a slowdown in dynamics in wages. While such terms and conditions are a strong obstacle for raising interest rates.
Inflation forecasts largely unchanged
Markets did not expect a major change in the rhetoric of the Bank of England when it comes to the content of the documents directly concerning the decision and monetary policy. Much more was expected the February inflation report (see link for all). Below the most important segments:
- CPI 2018 – unchanged at 2.72%
- CPI 2019 – 2.56% vs. 2.7% forecast in November
- CPI 2020 – 2.36% vs. 2.49% forecast in November
- GDP should rise slightly to + 0.5% q / q in Q1 2017
At first glance, a small depreciation of the inflation forecasts may add a little to the overall bearish tone how was received a summary report of the meeting and inflation.
Knee jerk reaction and GBP goes down
At first, the pound sterling went up toward the highs of Thursday’s session , but then began to slide rapidly, deepening the session highs. GBP/USD lost almost 100 pips, stopping only at round 1.2600 support:
On EURGBP situation is very similar, but to a lesser extent. First attempt to build profits, and vice versa, and a total of 80 pips loss to Euro. New peaks drawn and appreciation stopped at the PP R1:
