Bank of England non-event – UBS

FXStreet (Córdoba) – The Bank of England left the bank rate unchanged at 0.5% and also kept its asset purchase program at GBP 375bn at its September meeting. The voting pattern was also unchanged, with 8:1 members voting to maintain the current bank rate. Only Ian McCafferty voted for an immediate increase to 0.75%. Since this was broadly expected by consensus, sterling remained broadly unchanged after the announcement.

Key Quotes

“A closer look at the minutes reveals that not much else happened. Clearly the bank discussed the recent developments in China. But it dismissed the current worries, stating that it would be ‘premature to assume that the effects of developments to date would have a material effect on the UK outlook’. We agree, as the UK’s direct exposure to China is minimal”.

“The bank also put slightly less emphasis on the exchange rate level. This too was expected, as the GBP trade-weighted exchange rate has fallen a bit since the August Inflation Report. Given the recent slightly weaker forward-looking indicators and the increased uncertainty, the bank downgraded its expectation of 3Q GDP growth to 0.6% qoq, from 0.7%. Slightly lower, but still a very strong pace”.

“One last change in language was evident in the inflation risks seen by the eight members who voted for unchanged rates. Previously some of these members had seen ‘upside risks to the inflation forecast’ (which only reached the 2% target right at the end of the forecast horizon) and now they see ‘continued upside risks to inflation relative to the target’. These two statements could mean the same thing. However, the latter could also mean they think the risks of overshooting the target have increased. Overall, we believe that this set of minutes has exactly matched market expectation, so they should not move the pound too much. We still expect to see further members moving into the rate hike camp in coming months. Martin Weale and Kirstin Forbes would be the next in line”.

“Sterling remains one of our favorite currencies, and we continue to recommend an overweight in GBP versus an underweight in AUD in our global tactical asset allocation”.

The Bank of England left the bank rate unchanged at 0.5% and also kept its asset purchase program at GBP 375bn at its September meeting. The voting pattern was also unchanged, with 8:1 members voting to maintain the current bank rate. Only Ian McCafferty voted for an immediate increase to 0.75%. Since this was broadly expected by consensus, sterling remained broadly unchanged after the announcement.

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