BoE 'Super Thursday' looms as sterling hits 10-month high of $1.32

Office business tools with dollars and calculator on table

Office business tools with dollars and calculator on table

The bank's Monetary Policy Committee voted 6-2 in favour of leaving rates and QE unchanged.

July private sector PMI figures this week have been mixed this week, with the manufacturing sector seeing a pickup in activity, whilst the pace of expansion in the construction sector slowed significantly, though this morning's sector PMI numbers will be of far greater influence, the United Kingdom services sector accounting for 80% of the United Kingdom economy.

"All members agreed that any increases in Bank Rate would be expected to be at a gradual pace and to a limited extent", the bank's monetary policy summary said, suggesting that a hike in rates is not particularly close.

The comments followed the Bank of England's decision to hold rates at 0.25 per cent as it downgrades its forecast for United Kingdom growth in 2017 to 1.7 per cent, from its previous estimate of 1.9 per cent.

The irony is that some of this money has come courtesy of the Bank of England, which lent the High Street banks £100bn in super-cheap money last August to combat the perceived risks to the economy of the European Union referendum vote.

Her replacement, economics professor Silvana Tenreyro, voted against a rate rise in this session. "The chances of a 2017 rate hike now look dead and buried".

There were no changes to the bond-buying programme at the latest meeting.

The meeting minutes noted that if the economic picture evolved as the Bank was predicting, interest rates could be raised by more than financial markets are now pricing in.

Sterling fell by as much as two cents against the euro to hit its lowest level since the start of November, at €1.1059, after the Bank left its key interest rate unchanged. "Consequently the task of determining just what effect Brexit had on the United Kingdom economy will mostly fall on the shoulders of tomorrow's historians, rather than today's economists".

The BOE's forecasts continue to assume a smooth Brexit and are based on a rate hike fully priced in by the third quarter of 2018. This time, the equivalent forecasts are 1.7 percent, 1.6 percent and 1.8 percent. Inflation projections were slightly revised upwards for the current year to 2.7% on an annual basis from 2.6% before, while the central bank's expectations for annual inflation in 2018 remain at 2.6%. £78 billion has already been lent to banks through the scheme. Additionally, expected wage growth - which is a major factor in the BOE's monetary policy decisions - was slashed to 3% from 3.5% for 2018.

Forty per cent of the Bank's decision maker panel, which collects information on business conditions, is impacted by Brexit supply chain issues and other uncertainties, the Governor adds. "CPI inflation was substantially above the target, and was projected to remain above the target throughout the three-year forecast period".

The policy makers said United Kingdom wages are expected to "remain subdued" for the rest of the year, while also cutting its salary growth for 2018 to 3% from 3.5% expected previously.

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