The Bank of England Leaves Policy Intact, Bank Rate Unchanged at 0.1%
The main event of the trading week did not bring anything new to the British pound traders. The Bank of England left policy unchanged, with the bank rate at 0.1%, the lower boundary.
As was widely expected, the Bank of England chose to keep the bank rate unchanged at 0.1% and the gilt asset purchase target at GBP875 billion. Also, it kept the same target for corporate bond buying, at GBP20 billion.
The Monetary Policy Committee (MPC) voted 9-0 to keep the bank rate at the current level, downplaying voices that called for a more hawkish statement following the Fed’s announcement from last week. The FTSE 100 index liked the decision, moving from close to 7,000 to over 7,100 points on the news. It confirms once again why global fund managers are overweight in UK stocks for the first time since 2014 – an easy monetary policy should bode well for UK equities.
Details of the Bank of England June 2021 MeetingCopy link to section
Much of the emphasis of yesterday’s announcement was on the vote on the current pace of the quantitative easing program. The market participants also wanted to see what the Bank of England’s staff projections are for the period ahead.
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The vote on the quantitative easing program was unchanged when compared to the previous meeting – 8-1. Only Haldane voted to reduce the asset purchase target, unsurprisingly considering that he is an ultra-hawk in the MPC.
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The UK Gross Domestic Product (GDP) was revised higher by the Bank of England staff by 1.5% when compared to the May meeting. Also, inflation is expected to exceed 3% temporarily, mainly due to the changes in commodity prices viewed as transitory.
An interesting detail of yesterday’s report is that the Bank of England summary and minutes include no less than twenty-five mentions of the word “transitory” or “temporary” when describing inflation. It reflects the banks’ desire to properly communicate its view about rising prices.
Besides the bullish impact on the UK stock market, the Bank of England’s decision weighed on the British pound. Some market participants expected a more hawkish tone, but the central bank preferred to retain the accommodative measures.