Commerzbank’s Michael Pfister notes that the Bank of England kept rates unchanged and avoided signalling future hikes, despite a closer-than-expected 6–3 vote and Governor Bailey’s insistence that the BoE is not edging toward tightening. Pfister reiterates that the BoE is likely to delay hikes as long as possible and could quickly revert to cuts if the Middle East conflict ends, leaving the Pound with little policy support.

BoE stance offers scant pound backing

"As expected, the Bank of England left interest rates unchanged yesterday. It also avoided giving any strong indications of possible rate rises. Although the vote was closer than anticipated, at 6–3 (with three votes in favour of a rate hike), the additional vote came from Catherine Mann, who has a volatile voting record."

"At the press conference, Bank of England Governor Andrew Bailey emphasised that no one should 'leave this room thinking that the BoE is edging towards a hike'. At the same time, some policymakers noted that rate cuts could once again come into focus should the war come to an end."

"This essentially confirmed our long-held view that the BoE will wait as long as possible before hiking interest rates, and that should the conflict in the Middle East end, it will swiftly switch back to cutting rates."

"Although a few basis points of rate hike expectations have already been priced out following yesterday’s decision, there is still considerable scope for further adjustments. In short, anyone banking on monetary policy to support the pound is likely to be disappointed."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)