BoE Seen Unchanged, Minutes Key To Rate Outlook

The bank said the short-term inflation outlook has improved since the November forecast and a stronger krona and more favorable global price developments provided the scope to lift interest rates more slowly than was previously considered necessary.

“Yesterday’s Bank of England minutes did not rock the boat from the November Inflation Report”, he said.

Official figures earlier this week revealed that manufacturing output dropped by 0.4 per cent month-on-month in October – worse than expected and a sharp reversal of the 0.9 per cent rise in September.

The Bank of England (BoE) left interest rates and its asset purchase target unchanged on Thursday, as an improving economy continues to add to speculation that a rate hike could be around the corner.

This month’s rates decision comes as the economy still faces some challenges, with the minutes of the MPC meeting showing recent economic indicators suggested little pick-up in gross domestic product in the fourth quarter.

The minutes of the meeting showed policymakers concentrated on the continuing subdued inflation environment.

DBS expects no change in rates through 2016.

However, the Bank for International Settlements (BIS) – an association of central banks – described the world’s financial markets as experiencing an “uneasy calm” ahead of the Fed’s decision, which it said could harm emerging markets.

In the domestic financial markets, influenced mostly by expectations of a policy rate hike by the US Federal Reserve, stock prices have fallen, long-term market interest rates have risen, and the Korean won has depreciated against both the US dollar and the Japanese yen.

“Raising rates this year will, in my view, serve to reduce monetary policy uncertainty and to keep the economy on track for sustained growth with price stability”, Mr Harker was reported as saying.

BNP Paribas (Xetra: 887771 – news) currency strategist Sam Lynton-Brown said bullish sterling was one of the bank’s highest conviction trades for 2016, and that the market had pushed out the timing of rate expectations too far and was underestimating the pace of future rises.

The MPC voted unanimously to maintain quantitative easing at GBP 375 billion.

Carney’s earlier messages about the possible timing of a rate hike were knocked off course by surprises such as the plunge in oil prices a year ago. “It will be enough to get the Bank hiking but it will also be slow enough that the Bank could be knocked off course”, Jacob Nell, an economist with Morgan Stanley, said.

The two-year swap rate rose 2 basis points to 2.71 percent and 10-year swaps rose 2 basis points to 3.59 percent.