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Nick Beecroft, Senior FX Consultant at Saxo Bank, comments on today's BoE interest rate announcement:
- On the face of it, the Bank of England’s MPC decision to leave official rates unchanged at 0.5% and to increase its Quantitative Easing scheme by $25bn was a classic middle-of-the-road, negotiated, committee outcome.
- There was no decrease in the deposit rates paid to banks in order to try and get them to lend more money to the high street and to industry, and $25bn more QE, although something, was less than the median forecast for a $50bn increase.
- As a result, gilt yields and the pound are higher.
- If anything, the decisions served to reinforce market suspicions that there is a lingering, hawkish undertone to MPC gatherings, with ‘inflation nutters’ always at hand to seize any opportunity to fight the wrong war.
- They don’t want to believe the recent, dreadful preliminary Q3 GDP figures, and so instead they focus on flimsy improvements in sentiment and housing market surveys.
- On the other hand, at least the dovish faction won the day and negotiated the $25bn increase in QE.
- I continue to feel that the doves will ultimately win the day as, unfortunately, the unpleasant reality of a timid, jobless recovery in 2010 will remain an insurmountable obstacle to higher rates.
