Bank of England takes the foot off the pedal

• Bank of England leaves QE, rates unchanged.

• Slows pace of weekly purchases suggesting hawkish bias.

• Cable responds positively.

Bank of England leaves QE, rates unchanged

Bank of England left its interest rates unchanged and maintained its QE target but slowed the weekly pace of purchases indicating that the Monetary Policy Committee may be setting up for a shift towards a less accommodative posture as the economy continues to recover.

The statement from the committee emphasized the strong pace of recovery, projected consumer spending will grow as more COVID restrictions are lifted and that pace of inflation will begin to approach the central bank’s 2% target as growth picks up pace.

For now however, the Bank of England maintained its 895 Billion pound QE program continuing to provide liquidity to the fixed income market. The central bank made clear that it does not intend to tighten monetary policy until it sees signs of full capacity utilization and inflation levels at 2%.

Slows pace of weekly purchases suggesting hawkish bias

Although the BoE is far away from any policy shifts on interest rates, today’s preliminary moves suggest that monetary authorities may be beginning to prepare the market for a possibility of some taper in QE. One particularly hawkish note was that the departing BoE economist Andy Haldane voted to curb the pace of bond buying by 25 Billion pounds. However, Mr. Haldane is clearly in the minority and his departure may even remove any hawkish tilt from the MPC if his successor holds a different view. Still the fact that the MPC chose to moderate the pace of weekly QE buying is a hint that most policymakers believe that further accommodation in excess of what is being done already is unnecessary.

Cable responds positively

Cable initially sold off on the news, but then quickly reversed and traded to sessions highs of 1.3940 as traders glommed onto the tiny shift towards more hawkish posture. The market will now await the presser from the BoE and if the officials confirm that monetary policy has essentially “done it’s task” sterling may have scope to trade towards the key 1.4000 figure as the day proceeds.