4 min readThe BoE voted to leave rates unchanged at 3.75% for a second consecutive meeting, in line with expectations. The vote split was 9-0, more hawkish than the expected 7-2, as policymakers say they stand ready to act. This is in sharp contrast to the 25bps rate cut that was being priced in at the end of February.
The more hawkish stance comes as the war in Iran and soaring energy prices have complicated the picture for the BoE, raising concerns of inflationary pressures. The BoE said that it remains alert to the second-round effects of the energy shock and sees risks increasing the longer energy prices remain elevated. CPI is expected to be 3% in Q2 and 3.5% in Q3, up from 2.1%.
The BoE said that it will continue to monitor the situation in the Middle East and its impact on global energy supply closely. However, if energy infrastructure is under attack and the Strait of Hormuz is effectively closed, the outlook for energy rates remains volatile.
The market is pricing in over 60 basis points worth of rate hikes by the end of the year, up from 39 basis points ahead of the announcement. The market is pricing in a 50% chance of a rate hike at the next meeting, and a hike is fully priced in for June.
GBP VS DOLLAR (GBP/USD):
If we take a closer look at the technicals, we can observe how price was trading just above 1.3280 before the announcements, and post the decision GBP/USD rose to 1.33. On the four hour chart. GBP/USD trades in a falling channel dating back to early February. While the price has bounced from 1.3250, today’s low, the downtrend reains in tact. Sellers will look to break below 1.3225 to extend the bearish move. Buyers need to rise above 1.3375 to create a higher high.
FTSE 100 (UK100):
The FTSE 100 has also seen an impact from this BoE interest rate decision. Before the announcement, the price was trading around 10090, and currently, it is trading down 2.2% at 10050,, marking a strong fall. The FTSE is breaking below a key support as sellers look towards 9900.
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