THE TAKEAWAY: BoE leaves interest rates at 0.50%, asset purchase target stays at 325 billion -> Policy shows MPC’s worry about high inflation -> Cable reverses earlier losses
The Bank of England left the interest rate unchanged at 0.50% for the 38th time, as expected by analysts. Additionally, the Monetary Policy Committee decided to halt its stimulus expansion through bond purchasing, keeping the asset purchase target at 325 billion pounds, also as expected by most analysts. The asset purchase target was raised from 50 billion to 325 billion pounds this past February.
Both decisions signaled that the MPC is concerned about soaring inflation. The BoE is struggling to recover from a double dip recession while experiencing larger than expected inflation. The bank’s governor, Mervyn King, will start his final year in the position next month, which is likely to be his toughest as he balances both economic concerns.
Minutes from today’s decision will be published on May 23, clarifying the reasoning behind the decisions. King predicted yesterday that the UK will see slow and steady recovery throughout the rest of the year, but the stimulus program may be restarted and interest rates are likely to be cut if he is wrong.
Earlier today, manufacturing production was reported to have risen during March, while industrial production fell as expected, giving a small indication of economic growth.
Cable reversed all of its earlier day losses following the BoE decision, setting today’s high at 1.6150. EUR/GBP also dropped after the release, pushing new multi-year lows lower and stopping just short of the psychological .8000 mark.