Sterling little changed post BoE meeting

The Bank of England MPC left interest rates unchanged at 4%, as largely expected. The vote to do so was extremely tight though – four of the nine Committee members preferred to lower rates by 25bps – and the door is now open to a cut at next month’s meeting. Having dipped briefly following the rate announcement, sterling is slightly firmer against the dollar this morning at around $1.31 and largely unchanged versus the euro at about £0.88.  The single currency has also gained a little ground against the dollar – which didn’t benefit from a renewed fall in equity markets yesterday – trading at around $1.1540.

US stocks sold off quite sharply with the tech-heavy Nasdaq falling by almost 2% and the S&P 500 by just over 1%, while European equities fell by around 1%. The latter have started in positive territory this morning though, and the futures market suggests there may be some respite for US stocks at the open later today. US bonds rallied yesterday as stocks fell with yields declining by 6-8bps across the curve, while both UK and German yields saw more modest falls of around 2-3bps.

In its post-meeting monetary policy statement, the Bank of England MPC said that “progress on underlying disinflation continues”, while the “risk from greater inflation persistence has become less pronounced recently (and) the risk to medium-term inflation from weaker demand more apparent.” It also said that “if progress on disinflation continues, (interest rates) are likely to continue on a gradual downward path.” The market is pricing in about a 70% chance of a 25bps cut at next month’s meeting.

ECB member de Guindos says Euro area “growth is better than many projected only a couple of quarters ago (with) the economy showing a little bit of resilience,” adding that the central bank is “comfortable” with the current level of interest rates while also cautioning that “things can change in the future.”

Looking to the day ahead, it is quiet in terms of economic data with the University of Michigan consumer confidence/inflation expectations survey for November the only release of note. There are a few ECB/Fed members scheduled to speak during the course of the day.