Spreadex Market Update
Pound surges as Bank of England keep rates unchanged, but minutes point to August stimulus
After the explosive scenes that greeted the central bank’s interest rate inaction the markets have settled somewhat this afternoon; the pound is now up just over 1% against both the dollar and the euro (having surged over 2% at midday), while the FTSE is back hovering at 6680 after pushing towards 6750 earlier in the day.
Yet there was more to the Bank of England’s statement this Thursday then that unchanged 0.5% headline rate. The minutes revealed that ‘most members of the Committee expect monetary policy to be loosened in August’, something that explains the measured reaction from the stimulus-keen FTSE, while only one MPC member, Gertjan Vlieghe, voted to cut rates this month. It seems like the central bank needs more concrete data before it decides what action to take, though the MPC claimed that there are ‘preliminary signs that the [referendum] result has affected sentiment among households and companies’, with the property prices in line for a ‘sizable’ fall.
All in all it was likely the kind of non-action the markets needed at the moment. Given that Theresa May is still without a fully-appointed cabinet, and the fact that the actual referendum happened barely 3 weeks ago (the sheer number of political and market twists since then makes it feel further in the rear-view than it actually is), the Bank of England’s decision not to set the cat among the already flustered pigeons was probably wise. Some may criticise Mark Carney for teasing action in the aftermath of the referendum only to once again go back on his pseudo-promises (and that criticism will only intensify if next month’s statement is a similar damp squib), but there seems to be a relative consensus in the City that a lack of rash, relatively uninformed decision-making was wise.
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