Forex

British pound sinks as BOE members signal unwillingness to raise rates

After gaining ground on higher inflation data earlier Tuesday, the British pound sank as the Bank of England’s new deputy Governor said he wasn’t part of the majority of policy makers voting for a rate hike.

BOE deputy Governor Dave Ramsden was answering UK lawmaker’s questions in a parliamentary committee, alongside new external BOE policy setting member, Silvana Tenreyro.

The British pound moved immediately lower on the comments and remains around the $1.318 area as BOE Governor Mark Carney answers lawmaker’s questions in a separate session.

Inflationary pressures not evident, yet

Ramsden told the questioning Parliamentary committee that he didn’t anticipate inflationary pressures would build strongly enough in the coming months, to warrant an immediate rate hike.

“Despite continued robust growth in employment there is no sign of second-round effects onto wages from higher recent inflation,” Ramsden told MPs.

Tenreyro, meanwhile, aired her opinion that she wasn’t yet ready to vote for a rate hike. But, if there are firmer signs that inflationary pressures are building, then she would be inclined to agree with the rate hiking preference of the BOE majority.

"My view is that we are approaching a tipping pint at which it would be necessary or justified to remove some of that stimulus," Tenreyro said Tuesday. She added that a premature rate hike could prove more costly to the economy than an early rate cut.

Carney retains hawkish stance

Speaking to UK lawmakers in a second Parliamentary questioning session Tuesday, BOE Governor Mark Carney retained his stance on inflation. He said he anticipates having to write a letter to the Treasury explaining why inflation has risen above 3%.

“I think it’s more likely than not that I will be writing on behalf of the MPC a letter to the chancellor,” Carney said. “We expect that inflation will peak in and around the October figure, October-November figures, peaking potentially above the 3% level.”

The BOE’s main remit is to target inflation and keep it around the 2% target rate. When inflation rises, it’s more likely the central bank will raise interest rates to help slow the pace of inflation.

However, the British pound remained lower against the dollar despite confirmation of Carney’s view on inflation. That suggests investors are now less certain of a November rate hike.

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