Sterling briefly touched a session low against the USD following the decision as hawkish traders rather optimistically priced in a 20% chance of a rate hike. The pound has since recouped its losses with the expectation gaining momentum that the BoE will indeed tighten monetary policy to counteract the rising inflation.
Even amid stronger economic figures, notably from the National Institute of Economic and Social Research (NIESR) which suggested that UK economy grew by 0.6% on the month in January, evidence of a sustainable recovery is still thin on the ground, with the economy facing headwinds from some heavy public spending cuts.
The full outcome of the meeting won’t be known until the minutes are produced in a fortnight; it will be interesting to see whether any of the 6 members currently sitting on the fence decided to take sides, with the pressure to act amid growing inflationary fears certain to have induced some fairly heated debates.
Although the government will undoubtedly be content that the bank decided to hold fire on rates – cushioning the blow on their fiscal tightening - the same may not be said for sceptics of the BoE, whose line on inflation being temporary is beginning to wear thin a year down the line.
The pressure cooker is well and truly on then; a rate hike is more or less inevitable by May according to the latest consensus.
Edward Knox
Analyst - Caxton FX
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