The Bank of England today did not raise interest rates but said a hike is imminent in the “coming months” due to high inflation, in a move that surprised some investors.
Policymakers of Threadneedle Street voted 7-2 in favour of no change from the current record low rate of 0.1%.
The pound dropped by nearly 1% against the dollar to $1.3556 following the Bank’s decision.
Paul Brain, head of fixed income at Newton Investment Management, part of BNY Mellon Investment Management, comments on the Bank of England’s monetary policy meeting: “The Bank of England didn’t raise rates at its meeting today contrary to the prevailing view in the market. What it did do was to keep the idea of higher rates very much alive by hinting that it was imminent. The BoE would prefer to wait a little longer for further information on the labour market, which is logical given that furlough payments have only recently ended, and it may take a couple of months for the effects of that to be visible.
“The decision went against the market’s near-term expectations largely because, like the Fed, the BoE believes the inflation rise is temporary. More importantly, with the labour market in flux they can afford to wait a little longer before they have to react. Again, this seems similar to the Fed’s view.”