GBP Slips as BoE Delays Hike and Lowers Forecasts

The Bank of England monetary policy announcement and press conference went broadly as expected today, with the central bank holding off on raising rates while maintaining that they will rise gradually over the forecast period.

The central bank had previously strongly hinted that base rate would rise today – taking it above 0.5% for the first time since 2009 – but as the economic data took a turn for the worse in February and March, the tone changed. While the central bank maintains that it believes the data deterioration is temporary, it chose to wait for evidence of this before acting causing many to question the reliability of the central bank forecasts and its forward guidance.

Governor Mark Carney was keen to stress in the press conference that, despite today’s decision, policy makers are confident that domestic inflationary pressures are building gradually and appeared relatively comfortable with the expectation of roughly two rate hikes over the next 18 months and three over the next three years. This is unchanged from February and further reiterates the bank’s belief that the timing of the next hike isn’t as important as is suggested.

GBPUSD 5 Minute Chart

 

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While the pound remained volatile throughout the press conference, the bulk of the decline after the release – more than 0.5% against the dollar – came in response to the new economic projections which forecast lower growth and inflation over the next three years. Carney may have expressed confidence in the outlook but the forecasts were less convincing. Still, markets continue to price in a rate hike this year – most likely in November – which assuming Brexit negotiations progress as planned, will be far more convenient for the central bank.

Economic Calendar

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Craig Erlam

Craig Erlam

Senior Market Analyst - UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a Market Analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam