Latest Monetary Policy Committee Meeting Boosts Pound Sterling (GBP) Exchange Rate Today after Targeting Faster-than-Expected Interest Rate Hikes
Pound Sterling has rocketed higher this afternoon, gaining over 1% against many of its peers, after the Bank of England’s Monetary Policy Committee proved more upbeat than expected on the outlook for interest rates.
GBP/EUR, GBP/USD, GBP/AUD, GBP/NZD and GBP/CAD exchange rates have all recorded strong gains.
The MPC made no changes to borrowing costs this time around, leaving them at pre-referendum levels of 0.5%, with all nine policymakers voting in favour of the freeze.
But, in the minutes of the monetary policy meeting, it was revealed that MPC members believe predictions made just three months ago for the path of interest rates may have been too cautious.
The minutes read:
‘Were the economy to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report.’
Pound Sterling Exchange Rate Climbs Sharply as Markets Price in May Interest Rate Hike Following BoE Inflation Report
Before the meeting markets had been expecting to see interest rates hiked in May.
Hargreaves Lansdown Senior Economist Ben Brettell explains:
‘It now looks like the next rise could happen as soon as May – the next time the Bank’s economic forecasts are due to be updated. Prior to today’s announcement, markets were factoring in a 50% chance of a rate rise in May, and an 80% chance they’ll be higher by the end of the year.’
As this is a ‘Super Thursday’, markets also have the latest iteration of the Inflation Report to ponder.
This has further reinforced the idea that interest rate hikes will come faster than expected, after stating that the Monetary Policy Committee is no longer prepared to tolerate inflation trending above the 2% target for the next three years.
Markets have noticed that the language in the Inflation Report is similar to that seen in the minutes of the September Monetary Policy Committee meeting: the meeting which came just before the Bank of England hiked interest rates for the first time in a decade after slashing them to a 323-year low of 0.25% shortly after the Brexit referendum.