As expected yesterday, The Bank of England’s (BoE) Monetary Policy Committee (MPC) decided to keep rates on hold and maintain its stimulus programme. At the meeting the UK Central Bank warned that inflation will spike this year to double the bank’s target rate, yet they insist this inflation will be transitory and will thus look to keep rates on hold. Many will remember clearly that the bank previously stated that “until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2 per cent inflation target sustainably”. But with inflation reaching 2.5% last month, and signs of unsettling labour shortages in the country, the committee has decided to “drop that guidance”. The latest forecasts from the BoE show that they expect inflation to peak at 4% in 2021, against a previous prediction of 2.5%. If inflation does reach this mark, it would be a 10-year high.
The MPC agreed that the rising interest rates from 0.1% was not a suitable move at this moment in time. They also concurred that new guidance may be necessary if the economic data stayed in-line with expectations. The committee noted that “some modest tightening of monetary policy over the forecast period is likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term”. Following this statement BoE governor Andrew Bailey declined to answer on what the MPC meant by “modest” and was not willing to shed any insight on the balance of the committee.
GBPUSD was trading in the high 1.39’s at the open as the market eagerly anticipated the BoE’s latest decision. Having opened at 1.3982, following the day’s MPC meeting, the pair closed at 1.3932.
GBPEUR in contrast was able to gain some upside. The pair opened at 1.1738 and closed at 1.1768.
EURUSD on the other hand remained relatively flat on the day. The pair opened at 1.1835 and closed at 1.1836.
