The pound will grow. The growth of the pound will surpass the growth of the dollar. While market players were dreaming about how the pound would jump at the outcome of the Bank of England meeting, which gave a clear signal to tighten policy, fate decreed a little differently.
The British regulator on Thursday, as expected, kept the discount rate at 0.1%. The asset repurchase plan remained at 895 billion pounds. Given that some analysts did not rule out the possibility of tightening monetary policy, such a decision led to a sharp drop in the British currency.
The decision not only collapsed the pound but also undermined the confidence of the markets in the Bank of England and specifically its head, Andrew Bailey.
Press conference
During a press conference, Bailey said that he had not promised anything to the markets and none of the members of the regulator had said at what specific meeting the bank might decide to raise the rate.
The outcome of the meeting could be anything, "We are in a situation where it is not easy to make decisions," the official concluded.
The situation with inflation is difficult in the UK, as well as around the world, but deciding in a hurry and on emotions will be wrong and may have unpleasant consequences. Now there are no official statistics on the labor market after the collapse of the support scheme. There will be two such reports before the December meeting, and it will be a little easier to judge. At the same time, Bailey emphasized that he was not hinting at anything. The fact that he recognizes the difficulties does not mean that the regulator will raise the rate "tomorrow".
The Central Bank will certainly act with an eye on the labor market. The unemployment rate should not rise significantly in the short term, but there is a "high degree of uncertainty".
The country's GDP, as expected by the Bank of England, will continue to recover after the pandemic. At the same time, the regulator lowered the forecast of economic growth next year to 5% from 6% announced earlier.
The Central Bank also expects further acceleration of inflation. In the second quarter of 2022, it may exceed 4.8%. Thus, a moderate tightening of the PEPP will be necessary to achieve a steady inflation rate of 2% in the medium term.
So, the markets have not received specifics regarding the further step of the Bank of England. The regulator does not say that it will raise the rate, and at the same time does not refuse such a step. Will there be a rate increase and when will it be? Maybe the Central Bank is thus preparing the markets for the upcoming rate hike.
How the votes were distributed
The hawks at the Bank of England are now in the minority. The votes were distributed in the following proportion: 7 to 2. Officials consider it necessary to wait for fresh data before making a hasty decision.
What will happen to the pound
The pound was the main loser on Thursday. The November meeting was an extremely bearish factor. The "Briton" fell not only in a pair with the US dollar, but it also sank by more than 100 points in a pair with the yen and updated the lows against the Canadian dollar.
Such a strong drop is because some optimists seriously thought that the bank would raise the rate by 15 points. It is worth noting that this reaction is more emotional. It is unlikely that the next day there will be an equally serious rate of decline in the pound.
