XM Group - Analytics

    XM Group

    602.50 7.00/10
    70% of positive reviews
    Real

    Bank of England minutes reveal gradual turn towards rate hike- as expected

    The minutes from the Bank of England meeting of 8 July, showed that Monetary Policy Committee members were unanimous in their decision to keep interest rates unchanged at 0.50%. Although on its own this might have disappointed sterling longs, the other details contained in the minutes were positive for the pound as they were in the direction of higher interest rates in the future. There was some speculation that a 7-2 vote could arise (i.e. 7 members in favor of constant rates and 2 in favor of a rise), whereas in the end the voting result was 9-0.

    Regarding inflation, the MPC members saw a good chance that inflation will start to rise towards the end of the year and that inflation risks were on the upside. Domestic cost pressures are pushing inflation higher, although there was disagreement among members with respect to their future impact on the overall price level. Sterling was a factor that was keeping inflation contained.

    Risks stemming from the situation in Greece were also on the minds of committee members, as on that particular day, the situation regarding Greece’s continued membership of the Eurozone was rather fluid. Turbulence in China also featured in the deliberations. With Greece and China becoming less of a concern in recent days, the Bank of England should feel more comfortable to pursue a gradual tightening of monetary policy. Excluding these external factors, the current policy stance was still appropriate according to the committee, which shows that a potential rate rise is some way off into the future. Apart from the recent developments in Greece and China, the global environment was seen as relatively benign by the MPC.

    Already there are expectations that during the August meeting, prior to the release of the quarterly inflation report on the same day on 6th August, there could be the first dissenters within the committee and the vote could be 7-2 or even 6-3. This would be an interesting development that could eventually result in a rate hike around the turn of the year – provided of course that the data keeps showing a strong labor market, modest economic growth and inflation that is moving away from 0%.

    There was some volatility in sterling following the release of the minutes, but it eventually settled slightly higher at around 1.5620 against the dollar while the euro was hovering very close to the 70 UK pence level at 0.70060.

    Risk Warning: Forex, Commodities, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you fully understand the risks involved and do not invest money you cannot afford to lose. Please refer to our full Risk Disclosure.


    To leave a comment you must or Join us


    By visiting our website and services, you agree to the conditions of use of cookies. Learn more
    I agree