Bank of England Interest Rate Decision August 2021
The Bank left interest rates unchanged, with the monetary policy committee unanimously agreeing upon this course of action. It would have been a very major surprise if they had made a change. The rate has remained unchanged for a long time. It is anticipated that the next rate change will be a hike rather than a cut, but this is widely seen as unlikely to happen before some time in 2022.
Bank of England QE Decision August 2021
In recent months, major central banks around the world have been talking about reducing the pace and amount of “QE” (quantitative easing), sending signals of a desire to begin “tapering”, meaning slowly turning off the free money tap that is artificially boosting stocks. The Bank of England has done something similar but qualify this signal by saying that tapering should only be considered when the base rate has been hiked to at least 1%. The current base rate is far below that, at 0.1%.
This is arguably a small dovish tilt as it differs slightly from recent statements made by the central banks of the USA, Canada, and Australia during the past few weeks. Another dovish signal is the statement that banks are ready to implement negative rates if needed – meaning that the Bank is effectively countenancing a rate cut rather than a rate hike.
Bank of England on Inflation and GDP August 2021
The Bank of England stated today that the UK CPI (inflation) rate is expected to climb in annualized terms from its current level of 2.5% to 4% by the end of 2021 and remain that high until it begins to fall in the second quarter of 2022. This anticipated rate of 4% is of course considerably higher than the formal target of 2% which remains in force. However, the Bank remains confident that the inflation target overshoot will be transitory and should not require additional action to suppress.
The Bank stated that it expects UK GDP to quickly complete its recover to the pre-coronavirus level enjoyed in Q4 2019.
What Does This Mean for Traders?
One hour after the release of the Bank of England’s decision and statement, the British pound has moved little against a basket of currencies. This suggests strongly that the market has already priced in the Bank’s input, so traders should feel free to proceed with whatever plans they might already have to trade GBP currency pairs and crosses.