- Pound rises from its daily highs as markets are disappointed with 6-1 votes against expectations 6-2
- Saunders believes that inflation will exceed 2% over the next two or three years
The Bank of England has kept monetary policy unchanged as expected, but with a less convex tone than expected, the pound has left a meaningful setback. The market’s expectations for the meeting were directed at an unchanged policy, where curved calls were curtailed as inflation jumped to 2.5% in June and the bank expected inflation to temporarily exceed 3%. There was also talk of splitting 6-2 votes to maintain the goal of buying the current assets, but this turned out to be 7–1, because only Saunders decided to vote against.
The Bank of England said Saunders, previously considered a more prone member of the meeting, wanted to suspend the current asset purchase program as soon as practicable after that meeting, rather than resuming it until the end of the year as originally planned. He has also mentioned that he expects inflation to remain above 2% for two or three years and that the bank should therefore adjust its policy accordingly.
Ramsden, who was also considered one of the most embarrassing members, finally decided to vote in favor of maintaining the current program, as he felt that it was not clear enough that the economy was on track to meet the inflation target in a sustainable manner. the remaining negative risks of COVID.
Despite a nice upturn in economic activity, the delta option had introduced new uncertainties that reduced the likelihood of policy change. Retail sales data in June was a bit disappointing, as many Britons were ordered to isolate themselves for ten days after being detained, which reduced consumer traffic.
The shape of the yield curve is closely monitored, and especially now that the sequencing has been thrown into the mixture. The Bank of England has confirmed that the reinvestment threshold for mound income has been lowered from 1.5% to 0.5%, while the threshold for starting to sell mounds has been lowered to 1%.
The reaction in the market was rather modest and noticeable EUR/ GBP as GBP /USD whereas the former has been increasing price pressure by around 0.85 for some time, but has not been able to break the lower one.
– Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin