The GBPUSD currency pair was trading down over 75 pips (0.61%) after the Bank of England unexpectedly left interest rates unchanged at 5.25%. At the same time, many had expected the central bank to hike interest rates by another 25 bps (0.25%).
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The BoE’s decision was not unanimous as four Monetary Policy Committee (MPC) members voted to hike rates but were outdone by their dovish members, including Governor Andrew Bailey, who voted to keep interest rates steady.
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Some of the reasons the MPC gave for holding rates steady include the fact that inflation has fallen a lot in recent months, and they think it will continue to do so. However, the MPC warned there is no room for complacency and that it would take the necessary decisions to get inflation to target.
The BoE also noted that it would keep its policies restrictive for sufficiently long to get inflation to target. It also said that further tightening would be needed if evidence of more persistent inflationary pressures comes up in future.
The MPC majority that voted to keep rates steady cited the loosening labour market, August CPI readings, and falling business sentiment. The minority that voted to hike rates see persistent inflation pressure and see the drop in August services CPI likely reflecting one-off factors.
One member of the MPC sees the growing risk of falling output, which could require sharper rate cuts in future. The BoE expects Q3 GDP to rise by 0.1% versus the August estimate of 0.4%, with the underlying growth in H2 2023 likely being weaker than forecasted in August.
Despite rising oil prices, the BoE expects inflation to fall significantly soon, with the services inflation set to remain elevated. The central bank plans in Q4 to hold four gilt auctions in each sector with a planned size of 670 million GBP each. The BoE will continue to sell gilts evenly across short, medium and long buckets.
The GBPUSD price chart.
The GBPUSD currency pair was trading down 75.6 pips (0.61%) after the BoE left rates unchanged.
YOUR CAPITAL IS AT RISK. 76% OF RETAIL CFD ACCOUNTS LOSE MONEY.