UK yields are heading down, and the GBP/USD is trading under pressure as the BoE kept policy settings on hold and the number of dissenters dropped to 2 from 3 at the previous meeting, at the same time the inflation report cut growth and wage forecasts.
The BoE left the repo rate at 0.25% by a vote of 6-2 at the Monetary Policy Committee, with one less member dissenting in favor of hiking rates by 25 basis points than in June. The Inflation Report also nudged both CPI and growth forecasts lower. CPI is now seen at 2.58% one year out, down from 2.64% envisaged in May, and is seen fractionally lower than prior forecasts 2 and 3 years from now. Growth is forecast at 1.7% in 2017, down from 1.9% seen in May, with the 2018 projection trimmed to 1.6% from 1.7%, and the 2019 forecast left unchanged at 1.8%. MPC members McCafferty and Sauders voted to hike rates, while BoE Chief Economist Haldane decided to vote for no change, despite indicating he was thinking of tightening.
The meeting’s minutes showed that the majority view was concerned that the UK economy is likely to weaken further due to ebbing consumer confidence and demand. The minutes also highlighted domestic uncertainty, stemming from the advent of a weak minority government at the June election, along with the lack of a clear picture of how Brexit the process will unravel.
UK July PMI Services Beat Expectations
The UK’s July services PMI survey moderately beat expectations, rising to 53.8 in the headline reading after sinking to a four-month low of 53.4 in June. The median forecast had been for a slighter lift to 53.6. At 53.8, the index indicates expansion remains below the post-crisis trend in the sector. Employment growth was the highest since January 2016, but business outlook optimism remained subdued. Markit, the compiler of the survey, noted that respondents reported heightened economic uncertainty and fragile confidence among clients, with Brexit-related uncertainty getting a specific mention.
This article was originally posted on FX Empire
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