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Growing dissent in BOE sees GBP spike higher

The Bank of England have kept rates on hold at 0.25% in a widely expected announcement but with 3 members dissenting calls for a rate hike are increasing. The pound has spiked higher on this vote split with Mccafferty and Saunders joining the previous sole dissenter Forbes in dissenting. 

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 GBPUSD spiked higher by approximately 100 pips on the surprise dissent amongst MPC member

The main news from the release is that 3 members dissented and in doing so this has revealed a fairly even split within the MPC. Whilst Forbes is leaving and today was her last vote on rates, there remains both Mccafferty and Saunders who are calling for higher rates. The recent rise in inflation has no doubt weighed on their decision making in this regard and with expectations for higher rates being at historically low levels since last year’s Brexit vote, the rate-setting body seems to be moving to a more even keel. 

The accompanying statement contained the following comments:

  • All MPC agree any rate increase would be gradual and limited
  • CPI inflation could exceed 3% by autumn, sterling fall since May inflation report will add to this if sustained
  • Continued employment growth could suggest spare capacity and the BOE’s tolerance of above-target CPI is being eroded
  • Remains to be seen how large and persistent UK consumer slowdown will prove, notes that confidence is resilient
  • It’s "striking" that UK wage growth remains so weak relative to historic norms
  • Expects Q1 GDP growth to be revised to +0.3%, sees Q2 at +0.4%
  • For some, slack in the labor market diminished

Overall the tone is fairly balanced with the main market moving development being the vote split. Governor Carney is set to speak this evening at 9PM in the City of London but due to MPC rules he is prohibited from mentioning monetary policy at the event.

The UK100 (-1.32%) has accelerated its recent decline and fallen through the 7400 level.

 

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