Bank of England leaves rates unchanged, markets look to August

Image of GBP  USD daily chart

In a decisive move, Andrew Haldane, the Bank's chief economist, joined two other Monetary Policy Committee members in voting to raise rates to 0.75%.

Sterling rallied against the dollar on the news, heading for its biggest daily gain in two months.

BOE clears path for an August rate hike, chances up to 68% after Haldane mounts the hike train.

The last time three people "dissented" from the overall view, in June 2017, rates rose the following November.

As economic momentum improves, fears over rising inflation grow and pressure increases for interest rates to rise. In response, the probability of an August hike rose from around 33% to almost 46%, judging by market pricing, and that boosted GBP/USD and GBP/JPY while weakening EUR/GBP.

The latest rate decision comes after the Bank delayed raising the cost of borrowing last month amid the weakest readings of health for the economy in five years, triggered by heavy snowfall.

"A number of indicators of household spending and sentiment have bounced back strongly from what appeared to be erratic weakness in Q1 [January to March], in part related to the adverse weather".

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Expectations that the Bank of England could raise interest rates this summer were stoked today, despite the base rate remaining on hold at 0.5 per cent.

For the first time since joining the MPC four years ago, Andy Haldane broke ranks with the majority on the nine member rate-setting panel to join Ian McCafferty and Michael Saunders in calling for an increase in interest rates.

The Bank was forced to put off a widely expected rate rise in May after weak first-quarter GDP growth of only 0.1 per cent, but has indicated that it believes weakness was temporary, caused by bad weather.

"The MPC has repeatedly talked up the chances of rate hikes, only to disappoint when all the data don't fall into place".

Bank of England Governor Carney made no direct reference to the outlook for the economy or interest rates in a speech focussed on financial services in London on Thursday evening.

But he did endorse the MPC's new guidance on how long it will wait before reversing past asset purchases.

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