BoE Flatfoots Market

The BOE has flatfooted a percentage of the market this morning by leaving monetary policy unchanged (+0.5% vs. +0.25% exp) at its July meeting.

Despite the surprise, the MPC have given a clear signal that action will follow on Aug. 4 as evidence becomes available of the likely impact from the Brexit vote.

The minutes recorded indicated that “Most members of the Committee expected monetary policy to be loosened in August.” Eight of the MPC’s nine members wanted more time to discuss the options, and examine the ways in which moves by the various arms of the BoE.

The markets initial take away – a simple rate cut will not be the only move as the MPC had “an initial exchange of views on various possible packages,” with the scale of stimulus provided dependent on new forecasts for growth and inflation.

Expect the MPC to deliver an extensive package of measures to support U.K growth in a few weeks.

The initial market reaction saw Sterling rally, briefly hitting a two-week highs against the dollar (£1.3477) and the euro (€0.8250), more than two-cents above the $1.3209 level and €0.8383 it was trading just before the announcement.

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