BoE holds rates steady, Carney weighs in
England’s central bank decided to stay the course on Wednesday, opting to hold interest rates steady in response to recent developments in the domestic economy. The UK economy has shown strong signs of recovery in recent months, as the services and manufacturing industries have gained traction, while PMI has also improved. In response to the upswing, the benchmark interest rate and stimulus pledge were left unchanged at 0.5 percent and £375 billion, respectively, a move that shocked no-one in the financial world.
England’s July Monetary Policy Committee meeting was the mostly highly anticipated meeting of its kind this year, as it was the first under new central bank governor Mark Carney. Economists expect that Carney voted in favour of more easing this round, but was outvoted by the other committee members, who decided to let the current recovery take shape. However, Carney has already left his stamp on BoE procedure, issuing a statement along with the monthly interest rate announcement. The market is eager for comments from the new central bank chief, and as time goes on, expectations for a step-by-step monetary action plan will continue to grow.
Carney is expected to announce his detailed plans as early as next month, and many economists foresee the adoption of forward guidance in the near-term, with the possible application of intermediate thresholds. The Committee’s August policy discussions should provide the market with a clearer picture of UK stimulus and whether higher interest rates would weigh down the Kingdom’s growth outlook. YoY CPI inflation jumped to 2.7 percent in May, and will likely rise further before falling back toward the 2 percent target rate. The longer inflation remains above the target rate, the greater the pressure to raise the cost of money.
The central bank’s decision to follow-through on the fundamentals and leave monetary policy unchanged weighed heavily on pound Sterling, which declined by more than 1.3 percent against the US dollar and more than half a percent against the euro during Thursday’s European session.
Investors will get a clearer picture of Carney’s ambitions on July 17 when the MPC meeting minutes are released.
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