Bank of England leaves rates unchanged at 0.1%

Yesterday the Bank of England left rates unchanged at 0.1% and their bond-buying program remained at GBP 895 billion, both as expected. However, MPC member Saunders were joined by Ramsden as the two dissenters in favour of lowering the overall QE amount to GBP 860 billion. They noted that ‘some market tightening over the forecast period was likely to be necessary to be consistent with meeting the inflation sustainability in the medium term. Overall, the meeting was more hawkish than expected. As a result, Sterling strengthened across the board – most noticeably gaining 120 pips vs USD breaking past 1.37.

UK inflation expected to rise above 4%

The BoE also warned that UK inflation is expected to rise above 4% by the end of the year, largely fuelled by rising energy costs. They confirmed that supply chain problems were now starting to damage the economy and have now revised down its growth forecast for the third quarter by 1%. However, despite the inflation forecast an interest rate hike was not yet needed, the MPC said.

US policymakers expected to raise interest rates

This afternoon we have Jerome Powell of the Fed speaking. On Wednesday it was reported that half of US Federal Reserve policymakers now expect to start raising interest rates next year and think borrowing costs should increase to at least 1% by the end of 2023, reflecting a growing consensus that gradually tighter policy will be needed to keep inflation in check.

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