In a surprising announcement, the Bank of England kept its rates as expected at 0.50%, however instead of a unanimous 9-0 vote as had been expected, the vote was 7-2 with McCafferty and Saunders dissenting, citing slack being largely used up and wage growth was picking up, presenting risks to inflation in the medium term
MPC vote by a majority of 7-2 to maintain #BankRate at 0.5% pic.twitter.com/XQohXbQRa0
— Bank of England (@bankofengland) March 22, 2018
On the QE side, there were no surprises with the Committee voting unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases and UK government bond purchases unchanged.
A quick scan through the Monetary Policy Committee’s reveals that the BOE removed the line from the February release that “were the economy to evolve broadly in line with the February inflation report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast than anticipated at the time of the November report, in order to return inflation sustainably to target.”
Some other observations, courtesy of RanSquawk:
- Brexit: Maintains view on Brexit that was stated in the February release by stating ‘Developments regarding the UK’s withdrawal from the EU – and in particular the reaction of households, businesses and asset prices to them – remain the most significant influence on, and source of uncertainty about, the economic outlook’. Although did acknowledge that since the previous meeting, a draft withdrawal agreement between the UK and EU had been agreed ahead of the EU council meeting on March 23rd.
- Data: Overall has been broadly consistent with the MPC’s view set out in the QIR
- Inflation: Inflation is expected to ease further in the short term but remain above the 2% target.
- Growth: Prospects for global growth remain strong. Q4 GDP was revised lower to 0.4% with components suggesting less rotation towards net trade and business investment than anticipated in February, albeit could be subject to revision. Activity indicators suggest underlying Q1 2018 growth is similar to that of Q4 2017.
- Wages: Pay growth continued to pick up. The firming of short-term measures of wage growth in recent quarters and a range of survey indicators suggests pay growth will rise further in response to the tightening labour market; providing increasing confidence that growth will pick-up at target consistent rates.
- Slack: Maintains view on slack that was stated in the February release by stating that the steady absorption of slack has reduced the degree which it is appropriate for the MPC to accommodate an extended period of inflation above the target.
In immediate knee-jerk reaction, Cable spiked above 1.42 on the hawkish vote split, moving from 1.4160 to 1.4220; gains, however, were pared back with GBP then quickly sliding back to around 1.4150, below the pre-announcement level.
Gilts, meanwhile, fell in an immediate reaction, moving from 121-30 to 121-04, before making its way back to 121-30 again.
Ultimately, the statement means that the next hike is likely to take place in May, as previously expected, and thus no incremental information was revealed today.
via RSS http://ift.tt/2pzK6z5 Tyler Durden