Sterling Jumps As BOE Keeps Rates Unchanged, Decides Not To Follow Fed Into QE Wonderland
The British pound jumped 50 pips earlier after the BOE decided to keep rates unchanged at 0.5% and not increase the level of QE from the current 200 billion pounds. In a situation that mirrors our own, the bank's board saw one member, Andrew Sentance, voting for a rate hike, with 8 others deciding to keep rates at the current 0.5%. Sentance pushed for an increase in the rate to 0.75 percent on concerns that inflation expectations may become dislodged. And in a somewhat analogous loosening-tightening dynamic to that of the US, even as many had expected the BOE to actually loosen some more by raising the amount of QE, the bank kept QE total at the existing level, without adding on a Lite, 2.0 of some other silly designator. The reason is that unlike in the US with its doctored core CPI metric, the UK is already experiencing inflation over 3%. As BusinessWeek notes: "Annual consumer-price gains exceeded the 3 percent ceiling in July,
requiring King yesterday to send a public letter of explanation to
finance minister George Osborne on how he plans to control the cost of
living. King argued that inflation has been driven higher by “temporary”
factors and reiterated the central bank’s readiness to change policy in
either direction." It appears that for the time being, the US is all alone, and well in the lead, in the currency debasement via more printing race.
More from Business Week:
“Sterling is probably a bit firmer on the fact that there wasn’t a vote on further quantitative easing,” Philip Shaw, an economist at Investec Securities in London, said in a telephone interview. “The risks on further easing on monetary policy were probably a bit smaller before the publication of the minutes. But really the bank is in neutral mode.”
Policy makers voted after considering new quarterly economic projections that showed inflation will stay higher before slowing to about 1.5 percent in two years, below the 2 percent target, and growth will peak at a 3 percent annual pace instead of the 3.6 percent rate forecast in May.
“Inflation seemed likely to be temporarily higher than the committee had expected at the time of the May inflation report,” the minutes said. “Increases in the prices of some agricultural commodities in the days leading up to the meeting suggested that the increased volatility of CPI inflation in recent years might continue.”
Sterling has fallen by about a quarter on a trade-weighted basis since the start of 2007 while oil prices have more than doubled in the last 18 months. Wheat prices have surged 44 percent in the past year.
For Sentance, “economic conditions had improved over the past 12 months and the inflation outlook had shifted sufficiently to justify beginning to raise rates gradually,” the minutes said. Second quarter data “suggested the recovery was gathering momentum and there was evidence that firms had found it easier to pass through price increases.”