The Bank of England is widely expected to leave interest rates and asset purchases unchanged following its meeting today, as the global economic slowdown, lack of inflation and strong pound continue to overshadow the ongoing improvement in the domestic economy.
Advertisement
Bank of England governor Mark Carney has already said a decision to raise rates in the U.S. is “not decisive” for United Kingdom policymakers, stressing any such move on these shores will be made according to United Kingdom economic conditions.
But many economists said separately from the poll that the bank was likely to announce new unconventional measures to push long-term market interest rates lower as recent economic figures have pointed to risks that inflation and economic growth could be lower than the bank had projected.
DBS expects no change in rates through 2016.
Treasuries rallied on safe-haven demand after oil tumbled to the lowest level in six years, dimming the outlook for inflation as the Federal Reserve prepares to raise interest rates. Nevertheless, core inflation remains subdued, and CPI inflation is expected to stay below 1% until the second half of next year.
The BoE’s Monetary Policy Committee (Mpercent) kept its key rate at 0.5 percent, where it has stood since March 2009, it said in minutes of the latest monthly gathering. Given these considerations, the MPC intends to set monetary policy to ensure that growth is sufficient to absorb remaining spare capacity in a manner that returns inflation to the target in around two years and keeps it there in the absence of further shocks.
It might also reflect employers offering lower wage deals because of low inflation, something the Bank has said previously said could hurt Britain’s recovery.
By early trading on Friday, cable was down at $1.5135.
“They may reduce the stock of 2-week deposits further and strengthen incentives for commercial banks to buy government bonds”, said Gabor Ambrus, analyst of the Royal Bank of Scotland.
As he has done since August, Ian McCafferty, an external member of the MPC, voted to increase rates to 0.75 percent but all eight of his colleagues favored keeping them on hold.
The New Zealand dollar and Norwegian crown were big losers to the greenback as commodity prices tumbled again and traders reckoned central banks would embark on more policy stimulus to help their economies. Average savings interest rates are forecast to increase by 1 percentage point, up to an average rate of 2.3% at the same time.
Advertisement
“But looking at this NFP (non-farms payrolls) and taking Yellen’s comments into account, which were basically that she likes what she’s seeing, we’re going to be increasing rates here in the States on December 16”.
