GBP Spikes Higher on Unchanged MPC as Language Turns Hawkish
- Monetary policy settings left unchanged but language turns hawkish
- MPC votes 7-2 for rates to be left unchanged at 0.25%
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GBP/USD firmed after the Bank of England (BOE) left all monetary policy settings unchanged, while the MPC voted 7-2 to keep interest rates unchanged. MPC hawks Ian McCafferty and Michael Saunders have now voted for an increase in the Bank Rate to 0.50% in the last three meetings. GBP however was boosted by the accompanying release that highlighted:
“If the economy follows a path broadly consistent with the August Inflation Report central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period thancurrent market expectations.”
The BOE also said that inflation is expected to exceed 3% in October, while underlying pay growth has shown some times of recovery, albeit remaining modest.
Data released by the ONS on Tuesday showed that UK inflation rose to 2.9% from 2.6% in July, while core inflation also moved higher, to 2.7% from 2.4%. And data released on Wednesday showed wage growth stagnating, with average weekly earnings unchanged at 2.1%, missing expectations of a rise to 2.3%.
The Bank Rate was left unchanged at 0.25%, while the Asset Purchase Target and the Corporate Bond Target remained untouched at GBP435 billion and GBP10 billion respectively.
GBP/USD touched 1.33000 post-release, having rallied from around 1.29000 at the start of September.
Chart: GBPUSD Five Minute Timeframe (September 14, 2017)