Bank of England Votes Unanimously to Maintain Current Policy (Update)

Published July 22nd, 2009 - 12:26 GMT

BoE minutes from the July 8-9 meeting showed MPC members discussing if an "immediate change" to the asset purchase target was required but decided that there had not been enough new evidence to justify this and that the August Inflation Report would "provide an opportunity to reassess the stock of asset purchases". Hence, not much more information on that subject than what was given in the short statement following the rate announcement earlier this month. The Minutes showed that MPC members thought that the medium-term outlook for the economy had not changed very much since May, though near-term downside risks to GDP had diminished somewhat and the immediate inflation outlook might be a little higher. The MPC also noted that the Q2 GDP contraction (due Friday) would probably be smaller than it had thought two months ago and surveys also suggested that there was more momentum going into the second half of the year. But a lack of bank lending was still weighing on the economy. The MPC was unanimously behind keeping the repo rate steady at 0.5%. The 10-year September Gilt future initially rose on the minutes release but quickly fell over 20 ticks compared to pre-announcement levels as the statment did not include any real suggestions that the asset target will be upped next month.

GBP rallied after the BoE minutes, which indicated that there was no immediate need to change the asset purchase target in July. Cable rallied to 1.6390, but is running in to offers ahead of 1.6400 after further headlines suggested that the August Inflation Report would provide an opportunity to asset the program to date. It offered little in the way of fresh insight, but there are some market participants that still believe that the Bank will extend its program in early August. GBP is likely to find a modicum of support from these minutes intra-day, but the big picture theme is unlikely to change as the market looks forward to U.K. earnings season and the August Inflation Report. Cable stops remain under 1.6300, while offers are anticipated over 1.6400 and in to 1.6430. Weak shorts may be squeezed through 1.6400 before Cable resumes its bearish intra-day theme.

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