The Pound Sterling (GBP) exchange rate was little moved against most of its major peers on Thursday after the Bank of England (BoE) left interest rates at the record low-level of 0.5% and chose to maintain its quantitative easing programme at £375 billion per month.
Thursday’s decision means that UK interest rates have remained at the 0.5% level since March 2009. Economists had widely expected the decision.
Speculation among economists is growing that the Monetary Policy Committee (MPC) is coming closer to a split on when to raise rates.
Data released earlier in the week-increased speculation for a rate hike occurring earlier than initially expected.
Survey data indicating strong growth in the dominant services sector has added to pressure for a rate rise – though a weaker performance for Britain’s beleaguered manufacturers has led to calls for caution.
‘We should really have had the first rate rise by now. The danger is getting behind the curve. You would have to raise them more sharply than the MPC would ideally like, and deliver a bigger shock to the economy,’ said Andrew Sentance, a former member of the BoE MPC.
Investors will be keen to see whether any of the bank’s policy makers voted in favour of a rate hike. The minutes of the policy meeting will be released in two weeks time. Some analysts are speculating that possibly two out of the nine members of the MPC voted for a rate hike.
Expectations for a rise in interest rates to occur in November are growing.
‘Given we don’t expect any significant loss of momentum for the UK economy over the rest of the year we favour a November rate hike from the BoE with very slow and steady additional tightening of perhaps 25 basis points per quarter thereafter,’ said James Knightly from ING Markets.
The BoE is likely to suggest that wage growth will now become one of the major factors, which influence when rates will rise. Attention will now be focused on wage growth figures over the coming months.
‘If pay starts to rise in coming months, the first rate hike looks likely in November. Otherwise, any tightening of policy can wait until next year,’ said Chris Williamson, Chief economist from Markit.
The GBP/EUR pair is likely to experience volatility as attention now turns to the European Central Banks Policy meeting.
The ECB is under mounting pressure to take further action in order to tackle the threat of deflation and encourage growth in the Eurozone.
UPDATED 09:10 GMT 08 August, 2014
Pound Sterling to Euro (GBP/EUR) On Hold
Following the release of trade figures for Germany the Pound to Euro (GBP/EUR) exchange rate was trending in the region of 1.2555 – down 0.33% on the day’s opening levels.
The German data showed stronger-than-anticipated month-on-month increases in both exports and imports, with exports jumping by 0.9% in June and imports climbing by 4.5%.
In the hours ahead, further volatility in the Pound Sterling to Euro (GBP/EUR) exchange rate could be caused by the UK’s own Trade Balance data. The UK’s Construction Output report will also be of interest. It has been forecast that construction output jumped by 1.0% on a month-on-month basis and was up 4.7% on the year.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6853 ,
Pound Sterling,,Euro,1.2598 ,
Pound Sterling,,Australian Dollar,1.8178 ,
Pound Sterling,,New Zealand Dollar,1.9898 ,
US Dollar,,Pound Sterling,0.5934 ,
Euro,, Pound Sterling ,0.7939 ,
Australian Dollar,, Pound Sterling ,0.5500 ,
New Zealand Dollar,,Canadian Dollar,0.5026 ,
[/table]
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