GBP/USD, EUR/GBP flows: MPC 'passes'; still back of the tightening pack
BoE leaves rates unchanged with unchanged vote.
November IR month remains the real test as the Bank takes stock of length of supply shock and so risk balance
Mkt already running ahead of the MPC though in terms of pricing, BoE remains back of the major CB pack
UK MPC leaves rates unchanged, also sticking with the 6-3 vote. The BoE repeats its core line that there is little evidence of significant knock-on effects on prices and wages and notes the restrictive impact of higher mortgages and the soft labor market. Partly tempering this, there is also acknowledgement that the risks rise the longer the current circumstances persist.
The overall stance is summed up as “the longer this volatility persists, the bigger the impact it will have on inflation, and the more likely it is we will need to raise Bank Rate to ensure that inflation falls back to our 2% target.”.
The BoE will be taking stock at the November Inflation Report to decide then on when are where ability to retain patience runs out or at least needs minor hedging. Kneejerk, with the unchanged vote and the lack of explicit signalling, reaction has been somewhat ‘dovish’ with 2yr yields off around 3-4bp and sterling slipping around 20 ticks.
The market is already a lot more aggressive than just allowing for a possible single precautionary move, so the bar is already high given the Bank’s overall take. And in terms of schedule and trajectory the BoE is still the laggard falling behind the other majors in terms of tightening. Cable remains pressured and looking to potentially test deeper support down around 1.33~