Overview
Policy makers at the Bank of England voted unanimously to maintain the benchmark interest rate at 0.50% and their bond purchase plan at 200 billion pounds as “developments during the month had not been sufficient to alter committee members’ views about the major forces driving the medium-term outlook for inflation or about the risks,” the minutes said.
A Closer Look
In regards to the “members who had preferred a different policy action at the November meeting (which include Spender Dale and David Miles), a slightly different scale of asset purchases could still be justified.” Moreover, the minutes said “financial market volatility surrounding events in Dubai and the rating agency downgrade of Greek sovereign debt had provided a reminder of the potential for shocks to affect the United Kingdom.” Nevertheless, as members of the panel agree that the economy’s performance was in line with greater momentum looking in the near future, they said there had also been “less favorable developments.”
Forecast
As the Bank of England continues to hold a cautious outlook for the economy and sees a risk for a protracted recovery, the central bank is widely expected to maintain its currenct policy at its next meeting on Janurary 7th in order to stem the downside risks for growth and inflation. At the same time, the central bank announced that it will take an additioanl two-months to complete its 200B asset purchase program and pledged to keep the emergency program under review as the outlook for growth and inflation improves. In the currency markets, there was little reaction to the data with the GBPUSD climbing to 1.5958 from 1.5924. With the 200-day forming as a line of resistance and the 20-day SMA crossover below the 100-day SMA three days ago, there still seems to be further downside movements, but with the RSI at 29, the 200-day could easily reverse to a line of support in the near term.
Written by: Michael Wright, DailyFX Research
Questions? Comments? Send them to mwright@fxcm.com
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