BoE Vote to Not Add to Stimulus was Unanimous
THE TAKEAWAY: BoE votes for unchanged asset purchases and interest rate were unanimous -> Inflation forecast revised higher by MPC -> Sterling is trading lower
The votes in the September Bank of England meeting to keep the asset purchase target at 375 billion Pounds and the interest rate unchanged at 0.5% were unanimous, according to the minutes released from the meeting. The minutes said that the Monetary Policy Committee considered the rise in inflation and upcoming GDP volatility before voting, and will continue to consider both measures for future stimulus decisions. One MPC member said he saw a good case for adding to the asset purchase target, but did not vote for it.
The minutes predict a sharp rise in the third quarter GDP as the effect of the Diamond Jubilee unwinds and the economy receives a small boost from the Olympics. Furthermore, the bank now predicts that inflation will not fall as quickly as forecasted in August, following an uptick in the annual inflation rate. The rise in inflation was attributed to higher oil prices and an increase in utility and food prices; the BoE’s target inflation rate is 2%.
The minutes said it is still too early to see the effects of the Funding for Lending Scheme on borrowing by households and the corporate sector; however, the lower borrowing rates are encouraging.
The members of the MPC noted the continued slowdown of the global economy, especially in the Euro-zone and even Germany. The minutes attributed the low trading volume among financial assets in August to building anticipation for central bank decisions in September, like the one undertaken by the ECB. The BoE expects the Euro debt crisis to weigh on UK economic activity for some time.
Despite the unanimous vote to not add to monetary stimulus, as adding to stimulus would usually be Pound negative, Sterling still dropped following the release. $GBPUSD dropped well below 1.6250 in the minutes following the release, thereby reversing an overnight rally. The key 1.6200 figure could provide support.
GBPUSD 5-minute: September 19, 2012
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