BOE leaves bank rate unchanged at 5.25%, as expected

• Prior 5.25%
• Bank rate vote 7-0-2 vs 8-0-1 expected (Dhingra, Ramsden voted to cut by 25 bps)
• CPI inflation is expected to return to close to the 2% target in the near-term
• But it is to increase slightly in the second half of this year, owing to the unwinding of base effects
• There continue to be upside risks to the near-term inflation outlook from geopolitical factors
• Key indicators of inflation persistence are moderating broadly as expected, although they remain elevated
• Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target
• Monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates
• Prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably
• Will consider forthcoming data releases and how these inform the assessment that the risks from inflation persistence are receding
• Will keep under review for how long Bank Rate should be maintained at its current level
• Full statement

The only real addition to the forward guidance passage is the one highlighted in bold. Do take note at how that particular addition only highlights the risks to inflation persistence ‘receding’. It’s another step towards angling for a rate cut but not exactly a really big one.

Besides that, the bank rate vote also sees Ramsden join Dhingra in opting for a rate cut. So, that’s also a slightly more dovish outcome.

The BOE has also lowered its inflation forecasts, seeing inflation at 2.6% in one year’s time (previously 2.8%), 1.9% in two years’ time (previously 2.3%), and 1.6% in three years’ time (previously 1.9%).

Other than that, the rest of the language are as what one can expect. Or at least I would argue it that way. The pound has fallen though, with perhaps the slightest of dovish takeaways above helping. GBP/USD is down to 1.2450 from around 1.2590 before the decision.

This article was written by Justin Low at www.forexlive.com.