Bank of England keeps policy rate on hold at 0.50 pct, likely to stand pat throughout 2018

The Bank of England kept its bank rate on hold at 0.50 percent today, as was widely anticipated. The bond program was also kept unchanged, in line with expectations. The MPC was unanimous in its decision to keep the interest rate unchanged.

The MPC, in its new Inflation Report, marginally revised up the GDP forecast for this year as compared to the earlier forecast released in November. As in earlier forecasts, the BoE’s projections are conditioned on the average of a range of possible outcomes on Brext. The projection for inflation was unrevised, which signifies that the central bank still anticipates inflation to surpass the 2 percent target throughout the forecast horizon, noted Nordea Bank in a research report. The inflation projection is based on the current market expectations on rates, which are higher than in November.

According to the meeting minutes, the MPC “judges that the U.K. economy has only a very limited degree of slack” and that the monetary policy would be required to be tightened slightly and by a somewhat greater degree over the forecast period than expected at the November Report period, in order to return inflation sustainably to the target.
Therefore, the Bank of England hints at further rate hikes, no matter the Brexit uncertain. The market, following today’s decision, prices in a full rate hike of 25 basis points in August. However, all members agreed that any additional rises in the bank rate were likely to be at a gradual rate and to a limited extent.

The decision taken today was slightly on the hawkish side as compared to the expectations, noted Nordea Bank. The Bank of England appears to be eager to proceed with additional rate hikes and not too worried regarding the Brexit process and its implications for the economy.

“As for now we stick to our forecast that the bank stays on hold throughout 2018, although the risks are tilted towards a less accommodative policy”, added Nordea Bank.

At 16:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral 12.0867, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 65.8531. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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