Markets were surprised today when the Bank of England announced that it would be keeping its Base Rate of 0.50% and Asset Purchase Facility of 375 billion pounds unchanged. Only a single member of the Committee voted to raise rates. Futures contracts had implied a >80% probability of a rate cut being made today.
The Pound rose strongly upon the news, briefly hitting July highs against the USD at $1.3477 and against the Yen at 142.22. Its rise against the Euro was more restrained. The benchmark GBP/USD pair is currently trading up 1.17% since London opened this morning.
The decision is having a mildly negative effect upon equity markets so far, as it calls into some question the extent of forthcoming “helicopter money†QE programs that are on the table at several central banks.
The U.K. now appears to be on a firmer political footing, with the new Prime Minister Theresa May taking office and appointing her cabinet today. The signs are that Britain will indeed proceed to exit the European Union, but the Bank of England seems to be taking a more optimistic position on this matter at least in the short term by leaving rates unchanged.
The British Pound may well continue its recent recovery against the U.S. Dollar, at least to the $1.35 area.
