Today the Bank of England published its interest rate decision which seems to have been a "close call" as recent strong wage growth indicated that a hike was almost certain and the market was pricing the probability of such a move at 70%. However, yesterday's inflation reading caused the probability of a hike to drop
The actual decision turned out to be a surprise - rates were left unchanged at previous level as 5 MPC members voted to keep them unchanged while 4 MPC opted for a hike while Governor Bailey was among those who voted for a no change in rates. The central bank also decided to cut gilt-purchases by 100 billion GBP over the next 12 months.
While rates were left unchanged, the BoE cautioned that further tightening is required if inflation persists which leaves investors in a precarious position as GBP took a hit on the decision with GBPUSD moving to a fresh daily low near 1.2234. The key message today is that rates are at their peak or close to it but with current data, it could be a dangerous signal to send the markets since if inflation keeps running hot, the BoE will need to hike once more and will look like they are chasing the curve yet again. Everything will depend on data coming out in the next few months and while inflation has shown signs of slowing, it remains unclear if it will continue this downtrend or force the BoE to make an instinctive move.
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