As forecast by my colleague Alastair rates have pushed back through the 1.14 level today following the latest Bank of England interest rate meeting. As expected, the central bank held its key base rate on hold at 0.5% but it was the how the nine members decided to vote that was to drive the market. Market expectation was for 7-2 split in favour of keeping rates on hold however the vote was 6-3. Andrew Haldane, the Bank’s chief economist, joined two other Monetary Policy Committee members in voting to raise rates to 0.75%
GBP Forecast – Will we see a rate rise in August?
The bold move by Andrew Haldane has now increased the chance of a rate hike at their next meeting in August although the last time three people moved away for the majority view, in June 2017, rates rose the following November.
Before today’s decision the markets were split 50/50 on whether there would be a rate rise at the MPC’s next meeting in August and markets are now pricing in a higher chance this will happen. As a result the pound pushed to a high of 1.1459 against the single currency and back though 1.32 against the US dollar.
Our GBP Forecast – For anyone looking to buy euros this might be a short term opportunity. We have seen the pound push through 1.1450 on three occasions in the last month and on each occasion we have been back into the 1.13s within 2-3 business days. Will this trend continue?
In my view we could actually see a rebound this evening. Normally Carney would speak an hour later than the rate release however tonight he will be speaking at the annual Mansion House dinner. He will be speaking along with a number of key and high profile bankers and politicians, including Chancellor Philip Hammond. Mark Carney is due to speak at 21:15 this evening. I would expect him to play down a rate hike in August, particularly as he voted for rates to remain on hold at 0.5%. He has a history of cooling the market and should he follow suit I would look for levels to fall back into the 1.13s.
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