The Bank of England voted in favour of maintaining rates at 0.1%, surprising markets thats had been expecting the Bank to take action against raising inflation.
“The BoE has voted by a majority of 7-2 to keep interest rates at the current level of 0.1%. Many were expecting a hike today in the face of rising inflation but the decision is quite finely balanced,” said Dan Boardman-Weston, CIO at BRI Wealth Management.
Sterling fell as low as 1.3545 against the dollar in the immediate reaction to the decision as traders unwound positions that were hoping for a more hawkish Bank of England.
With inflation soaring, Manny had expected the BoE to move to bring price increases under control. However, with a vote of 7-2 in favour of keeping rates on hold, MPC voters clearly choose to help preserve the increasingly fragile economic recovery.
“Inflation might be rising, but the BoE is right not to consider an interest rates hike as a silver bullet to this problem. Labour data is crucial, and by deciding to postpone hiking rates, the MPC is likely waiting for more jobs data to become available following the end of the furlough scheme,” said Giles Coghlan, chief currency analyst, HYCM.
“Raising rates right now would risk harming businesses’ recoveries. It would also discourage people to spend their pent-up savings. All of this would damage the UK economy’s post-pandemic recovery and could result in ‘stagflation’, where inflation rises but the economy stagnates.”