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September 24, 2021

What's To Know After The BoE's Monetary Policy Summary

Bart Kurek

Let's look into the Bank of England's Monetary Policy Summary which took place on Thursday the 23rd of September, 2021.

Quick Summary:

  • BoE keeps interest rates unchanged at 0.10%
  • BoE will maintain its asset purchasing target at £875B
  • The vote to keep policy unchanged passed with a 7-2 vote

The minutes of the MPC meeting revealed that discussions about inflation showed that might not be as transitory as expected. Further, it highlighted the uncertainty around the labour market regarding wages inflationary pressures due to labour shortage.

The Pound rose after the latest Bank of England (BoE) rate decision. The central bank left interest rates unchanged at a record low of 0.10%. The bank will continue with its asset purchase plan to support the economy costing £875B. The bank is also revised the country's growth forecast for the year to 2.1%, down from 2.9%. However, there's still a broad understanding that the BoE cannot solve the ongoing challenges facing the UK right now, an example would be controlling the spread of the Delta variant, ongoing supply shortages or the issue of inadequate workers.

The Committee voted by a majority of 7-2 for the BoE to continue with its existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these government bond purchases at £875 billion and so the total target stock of asset purchases at £895 billion. The two dissenters were Dave Ramsden and Michael Saunders, who voted for an early end of the program by decreasing purchases with a target of £840B.

Alongside this, the BoE noted that some developments have meant that the case for tightening has strengthened, which in turn has prompted a shift in money markets pricing in a 15bps rate hike for March 2022 vs Previous May 2022. That said, the March meeting is not a quarterly meeting like February or May, making it unlikely that a hike will take place in March.

GBP/USD Outlook:

G/U broke above 1.37 to 1.375 in response to a slightly more hawkish than expected statement, nearing the middle of the range between 1.36-1.39. We saw price bounce from the bullish order block at 1.361, the same support level that price has been bouncing off over the past month. It's likely we could see price retrace and collect final orders before continuing its bullish move towards resistance at 1.39.

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