Bank of England keeps rates on hold amid soft inflation

Enrique Díaz-Álvarez09/Oct/2015Currency Updates

The Bank of England once again kept interest rates unchanged, voting 8-1 in favour of no hike yesterday for the third straight month. The lack of dissenters suggests the central bank is in no rush to hike.

Meanwhile, the minutes from the September Federal Reserve meeting showed that the FOMC came close to raising interest rates last month, only held back by concerns of a slowdown in China.


Sterling lost ground after the Bank of England’s announcement, although rallied later on to end 0.2% higher versus the Dollar.

The minutes were relatively more dovish than we had been expecting, with Ian McCafferty remaining the only member of the monetary policy committee to vote for an immediate interest rate hike. Policymakers saw a relatively softer outlook for inflation, with price growth now expected to remain below one percent until spring 2016. Another key statement referred to the shortening lag between hiking rates and their impact on inflation – another hint that the Bank of England feels it can afford to wait further before increasing rates. The central bank does, however, remain upbeat about UK growth prospects, with the minutes again relatively sanguine on the effects of a slowdown in emerging markets.

Last night, Governor of the Bank of England Mark Carney also claimed that the central bank would not necessarily wait for the Federal Reserve to hike before beginning the process of rate normalisation in the UK.

However, the overall dovishness on the part of the Bank of England minutes, and lack of any additional dissenters, leads us to push back our call for a first rate hike from February next year to the second quarter of 2016.


A mixed day for the Euro ended with the single currency 0.2% higher against the Greenback.

Almost completely overshadowed by the Bank of England and Federal Reserve, the European Central Bank also released the meeting accounts from its latest monetary policy meeting yesterday afternoon. The main discussion among policymakers surrounded the impact of emerging markets on the Eurozone economy, with Chief Economist Peter Praet warning that a slowdown abroad, namely in China, would likely lead to a slower than expected recovery in the Eurozone. However, it was deemed still too premature to conclude whether such developments would have a lasting impact on Euro-area output and inflation. This suggests that the ECB may hold off from expanding its quantitative easing programme until the first quarter of next year.

Today bodes to be a quiet day in the Eurozone, with very little in the way of announcements. Volatility in the Euro will primarily be driven by interest rate expectations in the US and UK.


A slight decline in the Greenback after the FOMC minutes ended with the US Dollar index 0.2% lower for the day.

Last night the Federal Reserve released the minutes from last month’s much anticipated FOMC meeting. Policymakers concluded that the time for a rate hike “might be near”, however, that it would be “prudent to wait” for evidence that showed the economy had not deteriorated and that inflation would begin to show signs of recovery. On the positive side, “many” members said that the necessary improvement in the labour market had been achieved, or would soon be achieved, with further gains likely to spur inflation, which has been weighed down by lower energy prices.

Earlier in the day, initial claims for jobless benefits had pointed to continued tightening labour market conditions in the US. Claims for last week declined to their lowest level since mid-July at 263,000, taking the four week moving average to 267,500. This is evidence that the domestic labour market is not performing better than last week’s nonfarm payroll numbers would suggest.

Movement in the Dollar today will largely be in reaction to last night’s Fed release. The import and export price index, and a speech from Federal Reserve member Evans could also cause additional volatility.


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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.