As expected, the Bank of England (BOE) kept interest rates steady at 5.25% in a 7-2 vote of the Monetary Policy Committee last June.
In its official statement, the Bank of England acknowledged that annual inflation fell to 2% in May, but also noted that the consumer price index is expected to rise slightly in the second half of the year.
The statement also highlighted “significant uncertainty” over labor force estimates, making it difficult for the central bank to measure employment trends. However, policymakers appeared wary of a decline in job openings, indicating easing labor market conditions.
Monetary Policy Committee members Swati Dhingra and Dave Ramsden once again voted in favor of easing monetary policy, but they were outnumbered by officials who preferred to sit idly by for now.
The MPC meeting minutes also revealed that there were some policymakers who viewed the risks as “finely balanced” in judging headline inflation to return to 2%. “It was not necessarily indicative of the desired sustained return to target.”
In general, the announcement indicated that the following decision was a “straightforward” decision by citing this “As part of the August forecast round, committee members will consider all available information and how this affects the assessment of declining risks from persistent inflation.”
Market reactions
British pound against major currencies: 5 minutes
Overlay of the British pound against the major currencies Chart by TradingView
The pound was mostly sideways ahead of the BoE statement, with the exception of GBP/CHF which rose during the Swiss National Bank's surprise interest rate cut announcement.
Although the Bank of England has decided to keep monetary policy unchanged for the time being as expected, the pound still has a bearish reaction to the “cautious hold” announcement, as traders are likely to turn their attention to rising prospects for a rate cut in August. .
However, price action between the GBP pairs became mixed two hours after the BoE event, with GBP/USD and GBP/CAD extending their gradual decline while GBP/JPY edged slightly higher. The rest of the pairs recovered most of their losses after the BoE, and then proceeded to move sideways during the New York session.
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