BOE Votes 7 – 2 For Rates Unchanged
The Bank of England’s “Super Thursday” meeting (rate decision, inflation report and meeting minutes) saw the GBP down as BOE keeps rates unchanged, widely disappointing the BOE bulls. The decision was widely expected following comments by BOE governor Carney last week who said that a May rate hike was looking less likely given the recent downturn in economic data. Prior to these comments, the market was highly expectant of a rate hike in May and these comments caused a sharp sell off in GBP over the last three weeks.
Although rates were kept on hold, the voting revealed a stronger hawkish skew than last time around with both McCafferty and Saunders voting in favour of a hike. However, the overall tone of the meeting was largely dovish with the BOE revising its growth forecasts lower, now predicting the UK economy to grow just 1.4% this year, down from the 1.8% forecast at the last quarterly update.
This downward revision comes on the back of weak growth data for the start of the year with GDP seen to have grown just 0.1% in Q1. The bank also revised down its growth forecasts for 2019 and 2020 to 1.8% and 1.7% respectively.
Takeaways from The Minutes
The meeting minutes essentially compounded the message delivered during Carney’s comments last month, saying that the majority of policy makers wanted to leave rates alone to assess further incoming data. Acknowledging the weakness over Q1, the BOE basically want to see whether this soft patch was a blip, and the economy regains a positive trajectory, or whether it marks the start of a deeper downturn.
The minutes also highlighted the uncertainty around Brexit and the negative impact this is having on the economy, saying “Although business investment is still restrained by Brexit-related uncertainties, it is being supported, like exports, by strong global demand and accommodative financial conditions.
Household consumption growth remains subdued, in line with the modest growth in real income over the forecast period”
However, the minutes did also reaffirm the other point that Carney made during his comments, stating that the bank does still intend to hike interest rates further in the coming months. On this point, the minutes said “ The Committee’s best collective judgement therefore remains that, were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon.
As previously, however, that judgement relies on the economic data evolving broadly in line with the Committee’s projections. For the majority of members, an increase in Bank Rate was not required at this meeting. All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.”
Takeaways from the Press Conference
Carney, who has long had the reputation of being akin to an “unreliable boyfriend” was quick to fend off criticism aimed at him during the conference. Carney said that the guidance provided by the BOE is aimed at consumers and businesses, not currency traders, adding that keeping rates on hold was the “sensible thing” to do given the recent data weakness.
Commenting on the state of the economy, Carney said that Q1 growth was down to temporary factors and that underlying growth is far more resilient, saying that this was far from a “debt fuelled consumption growth”. However, he did note that the outlook is “clouded by Brexit uncertainty”
After posting a double top around the 1.4343 level, Cable has since shed over 800 pips in just three weeks. Having recently broken down through the 1.3660s level which was the February swing low and September 2017 swing high, GBPUSD is currently sitting on the 61.8% retracement from the September 2017 lows. Unless GBPUSD can get back above the 1.3660s level, further losses look likely.