BoE stays on the path to hike in August – AmpGFX

The outlook for the GBP has improved with the Bank of England staying firm in its view that it expects to raise rates gradually, according to Greg Gibbs, Analyst at Amplifying Global FX Capital.  

Key Quotes

“At this meeting, a third MPC member (Chief Economist Andrew Haldane) joined the two policy hawks that had already voted for hikes at the two previous policy meetings, for a 6 to 3 vote to leave rates unchanged.”

“The tone of the statement suggests that the Bank is now poised to hike at its next policy meeting on 2-August.   This is 67% priced-in to UK money markets and would be the second hike in the current cycle after the Bank raised rated from the record low 0.25% to 0.50% in November last year.”

“The MPC also laid the groundwork for when it might begin to reduce its stock of purchased assets (so-called quantitative tightening).   It said, “The MPC now intends not to reduce the stock of purchased assets until Bank Rate reaches around 1.5%, compared to the previous guidance of around 2%.   Any reduction in the stock of purchased assets will be conducted at a gradual and predictable pace.“

“At the current pace of hikes (around 9 months apart, if they go ahead and hike on 2 August), it would be more than two years away; not necessarily something that the market will think much about at the moment.   At the margin, it might add to a broader sense that major central banks are moving from QE to QT.”