As expected, the BOE kept its interest rate unchanged at 0.25%, in a 7-2 vote, while maintaining the rest of its bond monetization programs in line in a 9-0 vote.
MPC holds #BankRate at 0.25%, maintains government bond purchases at £435bn and corporate bond purchases at £10bn. pic.twitter.com/D1w1kcvgrz
— Bank of England (@bankofengland) September 14, 2017
After an initial knee-jerk reaction lower, GBPUSD has surged as traders digest the hawkish addition of language by the BOE that “some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target.”
Some further hawkish details in the statement:
All MPC members continue to judge that, if the economy follows a path broadly consistent with the August Inflation Report central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than current market expectations. A majority of MPC members judge that, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure then, with the further lessening in the trade-off that this would imply, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target. All members agree that any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.
As a result, the GBP/USD is higher by nearly 100 pips on the news, while Gilt futures have tumbled to session lows on the surprisingly hawkish tone out of the central bank
And as cable surge, the natural reaction is for stocks to drop, and sure enough, the FTSE 100 has dropped 0.4%, erasing gains of as much as 0.2% as Sterling spike as high as 1.3307.
Some additional comments from the BOE:
The impact of Brexit on GBP:
