As expected, the BOE kept rates on hold at today’s meeting, after cutting rates at the last meeting. The vote split is perhaps the most intriguing part of this meeting. There was an 8-1 split, with the most dovish member voting for a rate cut. This is deemed a slightly hawkish shift, since Catherine Mann, who diverged from her hawkish past and voted for a 50bp cut in February, actually voted to keep rates on hold today. Likewise, two other ‘doves’ on the MPC committee also voted to keep rates on hold, which could be a signal that the bar for further rate hikes is higher in the era of Trump’s tariff risks.
This hasn’t helped the pound, which is lower on Thursday as the USD catches a bid post the Fed meeting. The impact from today’s decision has been fairly minimal, with no change in future rate cut expectations and the move in bond yields has mostly been negligible.
Uncertainty has been a key theme for global central bankers in recent weeks, and the BOE also jumped on the bandwagon today. The word uncertainty was used multiple times in the BOE’s statement, which suggests that the BOE will become reactive to situations as things change, and that BOE monetary policy is not on a pre set path. For traders, it means that it’s harder to predict what the BOE will do next and volatility around UK economic data releases could tick higher.
The BOE’s comments on growth and inflation are worth noting. The BOE, like the Fed, noted the decline in UK sentiment indicators, and said that this is having an impact on supply and demand factors, with sentiment also faling around employment intentions. This is worrying for the BOE, as a spike in unemployment can have disastrous economic and financial consequences.
The bank also noted that inflation had ticked higher in January, that wages remain elevated and CPI is still expected to rise until Q3, before falling back late this year. The BOE also said that it would pay attention to signs of lasting inflation pressures, which is a sign that the Bank is prioritising inflation risks as it considers its next policy move.
Overall, this is mostly in line with expectations. UK asset prices are moving in line with global market forces rather than the BOE today. For now, the traders may end up ignoring most of what Central banks have said this week since even they have said uncertainty remains high.
The FTSE 100 is lower today and US stock market futures are also pointing to a lower open in the US as the Fed’s stock market bounce fades. The dollar is catching a bid, as FX traders focus on the upgraded FOMC inflation projections. This is frustrating GBP/USD from reaching the magic $1.30 level, which is proving to be a sticky level of resistance. Overall, we think the pound will breach this level, but the next couple of days could see the dollar sell off pause, as investors take a breath after the Fed meeting.
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