Bank of England keeps rates unchanged, hints at August cut

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15 July 2016

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

Sterling rose sharply across the board on Thursday following the surprise announcement that only one member of the Bank of England’s monetary policy committee, Gertjan Vlighe, voted in favour of cutting interest rates from their already record low level of 0.5% this month.

ollowing last month’s shock Brexit vote, financial markets had been heavily pricing in the possibility of a cut this week, especially after dovish comments from Bank of England Governor Mark Carney that suggested monetary easing from the central bank was just around the corner. Carney warned that the economic outlook had deteriorated post-Brexit and gave a very strong hint that borrowing costs could be lowered as soon as the July meeting.

A lack of further dissenters therefore comes as a major surprise to us given recent rhetoric from Governor Carney, with eight of the committee voting in favour of no change. The minutes of the meeting were, however, very dovish. The MPC reiterated its commitment to take action where needed in order to support growth, while claiming there were preliminary signs that the Brexit result was already affecting sentiment among households and companies.

We therefore think that the Bank of England is on course to cut rates in August, provided the July PMI’s at the beginning of next meeting slow, as expected.

In other news, the Japanese Yen slid further during Asian trading on speculation for further easing. Meanwhile, the New Zealand Dollar ended as one of the worst performing major currencies after the RBNZ called for an unscheduled update on the economy next week, causing investors to fret about the prospect of addition rate cuts in the country. In contrast, the Brazilian Real jumped on hopes that interim President Michel Temer can push through austerity measures.

The international newswires were also rocked by the news out of France last night that at least 84 people were killed in an attack during Bastille Day celebrations in Nice. So far the Euro has weathered this tragedy relatively well, and was little changed as UK markets opened this morning.

Major Currencies in detail:


The Pound rallied sharply by 1% against the US Dollar, and by around 0.6% versus the Euro following the BoE announcement.

Despite standing pat on rates this month, it’s clear to us that the central bank is poised to ease its monetary policy this summer, hinting that possibly a “package” of measures could be on the way at the August meeting. In fact, “most” members of the committee now expect monetary policy to be loosened when the central bank meets next month.

Given the very sharp drops expected in the key business PMI’s in the first week of August, the first to be released since the Brexit vote, we see the Bank of England as almost certain to cut rates by 25 basis points at next month’s meeting. The Bank of England will next meet again in three weeks’ time on Thursday 4 August.

Mark Carney will be speaking in his native Canada today, although isn’t expected to touch on monetary policy.


The Bank of England’s decision to keep rates unchanged sent the Euro temporary higher against the US Dollar. However, these gains were quickly reversed, and the single currency finished just 0.25% higher for the day.

With French markets closed for Bastille day, announcements in the Eurozone were few and far between. The Euro subsequently remained relatively range bound, with investors looking for more significant announcements in the coming days. The ECB meeting next week is the next major event on the horizon.

We now look ahead to today’s inflation figures for the Euro-area. Any negative surprises could heap more pressure on the European Central Bank to ease monetary policy in the coming months, and would likely weigh on the Euro today.


The US Dollar fell after the BoE’s announcement, ending the day 0.2% lower.

Initial jobless claims continued to impress yesterday. Claims were unchanged on the week previous at 254,000 last week, continuing to point to a strengthening in labour market conditions in the US, one of the key factors the Federal Reserve looks at when deciding on interest rates. Producer prices also delivered a positive surprise. The producer price index rose by 0.3% in the year, defying expectations for a decrease.

The latest inflation figures and retail sales data could both be key for the US Dollar today. Retail sales are expected to have printed almost flat in June.

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