Hawkish Bank of England minutes boost the Pound
23 July 2008
Sterling rallied to session highs on Wednesday after minutes from this month’s Bank of England rate setting meeting revealed a three-way spilt on interest rates. Minutes from the 9-10th July policy meeting, showed arch hawk Timothy Beasley wanting an immediate hike while dove David Blanchflower continued his campaign for a cut, in order to resuscitate the ailing UK economy.
That produced the first three-way split since May 2006 and the decision was a “difficult one” for all nine policymakers given inflation was likely to turn out higher and growth lower than the Bank had previously thought in May. “Keeping the Bank rate at 5.0% when the economy was slowing was arguably the already sending a strong signal to the Monetary Policy Committee’s commitment to reducing inflation,” the minutes said. “A rate change this month would be a surprise at a time when credit and other financial markets remained fragile, and any change in rates would be better communicated alongside the Bank’s August Inflation Report”.
Clearly the path of the Bank Rate remains highly uncertain with the discussions and analysis in the forthcoming inflation report necessary to shed more light on the implication of the upcoming risks to both inflation and growth profiles.
Meanwhile, British mortgage approvals for house purchases fell 66.9% on the year in June to a fresh record low of 21,118, the British Bankers Association said. The annual fall was the biggest since the series began in September 1997 and indicates the housing market downturn is accelerating as lenders ration credit.