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Sterling Strengthens as BOE's Posen Drops Call for Easing Increase

Sterling Strengthens as BOE's Posen Drops Call for Easing Increase

David Schutz,

THE TAKEAWAY: MPC member changes mind on easing; QE vote 8-1 as BOE minutes strike hawkish tone-> BOE wary of upside CPI risk -> Cable jumps on the news

Adam Posen ended his push for increased quantitative easing and the dovish David Miles appeared wary of upside inflation risks, minutes from the BOE’s most recent meeting revealed today. In an abrupt change of mind, Posen joined the majority of the Monetary Policy Committee in voting to leave easing unchanged, while Miles described his views on increased easing as “finely balanced.” All 9 MPC members voted to keep interest rates unchanged at ultralow levels.Sterling gained as an increase in quantitative easing became less likely.

Sterling_Strengthens_as_BOEs_Posen_Drops_Call_for_Increased_Easing_body_BOE.png, Sterling Strengthens as BOE's Posen Drops Call for Easing Increase

The BOE’s hawkish tone reflected recent comments made by MPC members suggesting that inflation may prove harder to control than previously believed. MPC member Tucker yesterday said inflation may not fall as fast as hoped, and described recent news on inflation as “bad.” Upside CPI risks come from oil and commodity price increases.

The recent comments struck a different tone than last month’s Minutes, in which the central bank said it sees inflation easing to manageable levels in the coming years.

The BOE Minutes additionally reckoned that GDP results in Q1 and Q2 may actually register a recession. The central bank said growth could contract in one or successive quarters because of weak construction during the Jubilee holiday.The Minutes also said that the global recovery is proceeding broadly as expected, concerns out of the Eurozone are now greater if anything.

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