Sterling strengthens on MPC 5-3 vote

Sterling strengthened against both the euro and the dollar after the Bank of England’s MPC voted 5-3 to keep interest rates unchanged at its latest policy meeting. The number of dissenters, all of whom favoured an immediate 25bps increase in rates, was more than the market expected and so took it completely by surprise

For those MPC members who voted for a interest rate increase, their main concern is the current above target rate of inflation and their fear that it will overshoot target by even more over the medium-term than they had previously expected. For the five who voted for no change, they noted the slowdown in GDP growth underway, subdued wage growth, and signs of softer activity in the housing market,  hence they were prepared to keep policy on hold notwithstanding the continuing rise in inflation

The dollar has strengthened further against the euro, building on its post Fed meeting gains,  and is currently trading at around $1.1150. It has also risen against the yen, to over Y111

US 10-year bond yields have reversed some of their post Fed meeting fall, rising by around 5bps to 2.17%. Equivalent UK yields rose sharply after the MPC decision, by around 10bps to over 1%, while German yields closed 5bps higher at 0.29%

Retail sales in the UK fell in May but this followed a very big jump in April. Over the three months to May, sales volumes were slightly ahead of their level over the three months to February

Euro area  finance ministers have agreed to release the next tranche of funds due under Greece’s bailout programme

Date due today include housing starts in the US