FXStreet (Córdoba) – Thursday’s monetary policy summary and minutes from the Bank of England (BoE) brought no major news on their policy stance and an unchanged 8-1 voting pattern in favor of unchanged rates. Accordingly, sterling showed little reaction, says the UBS analyst team.
Key Quotes
“We continue to expect that close to full employment will create sufficient inflationary pressures for a rate hike in 1Q2016. However, Thursday’s BoE statement was marginally more cautious than previous ones, which heightens the risk that the BoE could postpone”.
“While the BoE sees rising domestic price pressures stemming from an increasingly tight labor market, they also now expect a more prolonged drag on inflation from the previous GBP strengthening. Uncertainties surrounding economic developments in China were not highlighted much, indicating that the focus still is primarily on domestic issues. BoE member Ian McCafferty dissented again and voted in favor of a rate hike, citing rising domestic costs as a reason to act now”.
“Despite this rather cautious statement, the factors pointing to GBP performing well over the coming six months remain. Even with the recent fall of the Services PMI in the UK, its economy should grow above 2% this and next year and proceed further towards full employment”.
“Furthermore, the UK should enjoy one of the strongest inflation base effects among major countries. The main issue will be the first-mover disadvantage: the BoE needs the US Federal Reserve to make the first rate-hike move to prevent the GBP from strengthening too much, thereby choking off an inflation rebound”.
(Market News Provided by FXstreet)