Bank of England hikes bank rate by 25 bps, keeps bond program unchanged

As was widely anticipated, the Bank of England hiked its bank rate by 25 basis points to 0.50 percent during its meeting today. The BoE kept its bond program unchanged. Today’s decision was consistent with the bank’s hints in recent months. The MPC voted 7-2, with members Ramsden and Cunliffe voting to keep the rates on hold.

The central bank’s new Inflation Report shows that the BoE marginally revised down its economic growth projection for the next year as compared to its earlier forecast in August. The projection for unemployment rate was revised down as well. Meanwhile, the inflation forecast was revised up slightly for this year but was revised down a bit for the next year. The Bank of England still expects inflation to exceed the 2 percent target through the fourth quarter of 2020.

The MPC meeting minutes state that “inflation is expected to fall back over the next year and, conditioned on the gently rising path of Bank Rate implied by current market yields, to approach the 2 percent target by the end of the forecast period”. The BoE appears to be pleased with the current market pricing which suggests roughly one more hike at the end of 2018 and another one in 2020, noted Nordea Bank. The central bank reiterated its worries about the impacts of Brexit on the economy. All the MPC members continue to agree that any further hikes in the key rate would be expected to be at a gradual rate and to a limited extent.

“Longer out we expect the slowing real economy to pull inflation below target, and the Bank of England is therefore expected to leave its policy rate unchanged throughout 2018 and 2019”, added Nordea Bank.

At 13:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bullish at -173.283, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -28.5325. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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