Bank of England surprises nobody, but GBP bulls could be under threat


FXstreet.com (London) - The Bank of England’s Monetary Policy Committee (MPC) this morning voted unanimously to hold interest rates and quantitative easing at current levels.

The BoE voted on a motion to maintain the Bank Rate at 0.5 percent and to maintain the stock of asset purchases financed by the issuance of central bank reserves at GBP375 billion.

The MPC reaffirmed its intention not to raise base rates above 0.5 percent or to reduce its stock of asset purchases at least until the headline LFS unemployment rate had fallen to 7 percent, subject to three ‘knockout’ conditions. These concern the outlook for inflation 18-24 months ahead, the stability of measures of inflation expectations, and the impact of the monetary policy stance on financial stability.

The modestly promising upwards revision of second quarter GDP to 0.7 percent was seen as augmented by the continuing strengthening of the indicators of consumer spending in the third quarter of 2013 and by further strong business surveys in August. The Markit/CIPS services activity index was broadly unchanged in August, after having increased sharply in July, and the manufacturing and construction indices had strengthened further.

Consequently, the composite PMI was at its highest level since 1997. The CBI service sector survey had also strengthened in August. Overall, Bank of England staff estimated that the initial estimate of output growth in the third quarter would be around 0.7 percent, compared with the 0.5 percent expected at the time of the August Inflation Report.

Strong UK macro the new norm

Cable continued its gains this morning, with GBP/USD hitting an eight-month high at USD1.5970. However this sterling bullishness could be under threat as the trend of positive UK macro data continues, with stronger-than-expected data becoming the new norm, ceasing to surprise to the upside, and weakening drivers for sterling strength.

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