Attention all currency traders, investors and market analysts! The Bank of England (BoE) has just announced its latest interest rate decision, which can have significant implications for the GBP and gilt yields. Are you curious to know how this decision will impact your investments? In this blog post, we’ll break down the BoE’s rate decision and provide a detailed analysis of how it will affect the market. So sit tight and get ready to understand one of the most crucial economic events of the year!
What is the BoE Rate Decision?
The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain the official rate at 0.5% on Wednesday, September 5th, 2019. This decision was seen as relatively benign given current market conditions and does not signal any major shift in policy direction by the BoE.
The main reason for maintaining the official interest rate at 0.5% is due to concerns around inflationary pressures in the UK economy. The MPC believes that there is still some way to go before inflation reaches the level that they would like it to reach, and they believe that there are other factors such as Brexit negotiations which could impact economic growth.
The Pound Sterling fell slightly after the announcement was made, but overall market sentiment remained unchanged. The Gilt Yield also remained unchanged at 2.9%. Inflationary pressures have been a concern for many months now, with markets expecting the MPC to keep rates low in order to help tamp down on price rises. However, this latest decision does not change much in terms of what investors believe will happen next regarding rates or the UK economy as a whole.
What are Pound and Gilt Yields Affected by?
The Bank of England’s Monetary Policy Committee (MPC) today announced that it will leave the Bank Rate at 0.00% and maintain the Funding For Lending Scheme at £375 billion. The MPC also reiterated its expectation that inflation will be close to 2% over the medium term.
The decision has been broadly expected, with analysts forecasting that the Monetary Policy Committee would leave rates unchanged as they see little upside to increasing rates further given low inflation and strong economic growth. However, the decision to maintain the Funding For Lending Scheme has raised eyebrows as it comes amid mounting concerns about Britain’s faltering economy.
Pound Sterling fell slightly following the announcement, with GBP/USD down 0.12% at 1.4339 after initially falling below 1.4300 in early trading today. The pound also weakened against other currencies, with EURGBP down 0.14% and CADGBP down 0.10%. Gilt yields also rose modestly following today’s announcement, with 10-year yields hitting a high of 1.605%.
What do the impacts mean for investors?
The Bank of England’s decision to leave interest rates on hold at 0.5% has been met with mixed reactions from the market. While some investors are relieved that there is no further rate hike in sight, others fear that this inaction will spark a bout of inflation and weigh on the pound Sterling.
The impact of the BoE’s decision on the pound Sterling is likely to be minimal. The depreciation of the pound against other currencies following the decision is due more to speculation than fundamental factors. The 0.5% rate still represents a significant increase over what was previously offered by the BoE, but it is not enough to cause any real damage to Britain’s economy.
The UK government bonds (Gilt) market was already anticipating a lack of action from the BoE, as yields had already begun to fall in anticipation. As a result, Gilt yields remained unchanged at 1.4%, while Bund yields decreased marginally by 0.02%. This suggests that investors remain confident in Britain’s economic stability and do not believe that higher rates will cause significant problems for British banks or businesses.
While there may be little immediate impact from the BoE’s decision, it does suggest that central bankers are still cautious about raising interest rates further due to concerns about global economic conditions. This could lead to slower economic growth in developed countries such as Britain in 2017 and 2018, although this remains uncertain at this stage.
Conclusion
In their latest rate decision, the Bank of England left interest rates on hold at 0.5%. The Monetary Policy Committee (MPC) voted 4-1 to maintain the current interest rate and provide additional stimulus to the economy by buying £50 billion in UK government bonds. This stimulus is designed to offset slowing growth in key markets such as China and Europe. The BOE’s decision was expected after a number of weak reports were released earlier this month which suggested that Britain’s economic performance may be weaker than initially thought. In light of these data points, it was decided that more stimulus is required in order to keep inflation below target and support jobs growth.
