BOE Review

The Bank of England’s December meeting passed as expected with rates remaining unchanged and voting retaining an 8-1 split with BOE’s McCafferty still the only hawk as yet convinced that the BOE should lift interest rates.

Points From The Statement

As we noted ahead of the meeting, the main issue darkening the Bank’s outlook is the recent further decline in Oil prices, which have now plumbed new 2015 lows, and which the Bank feels is “increasing the likelihood” that inflation will remain subdued.  Alongside the subdued inflation outlook the BOE also noted a recent slowdown in pay growth, a key factor in their decision to raise rates.  This issue could be linked to inflation, with employers less inclined to increase pay whilst inflation remains low, a dynamic which the BOE have previously warned could prolong the domestic recovery. However, the Bank do expect this to subside as inflation rebounds.

Despite the flat inflation outlook and slow down in pay growth the BOE did note some positives. The softer spending cuts announced by Chancellor Osborne last month are expected to boost GDP next year by 0.2% whilst near term they see Q4 GDP growing at a similar pace to Q3.

Regarding global factors the BOE noted that their was “little evidence” of greater than expected spillover effects from the slowdown in emerging markets and noted also that risks to emerging markets remain the same even if the US do raise rates later this month.


In all the Bank’s current assessment and outlook were largely expected. The heavy downward pressure on inflation stemming from continued energy price declines continues to pose an obstacle  to the Bank;s intention to raise rates and until we see a rebound in this area we are likely to see more of the same near term as the BOE retain a “wait and see” mode.

Market reaction to the meeting was fairly muted given the anticipated nature of the event. GBPUSD dropped around 50 pips post-meeting only to rebound alost immediately and trades within yesterday’s range.

Trade Idea Update

The Dovish BOE triggers a SELL GBPJPY as per the charts posted on Tuesday. However, the rising trendline and key horizontal support have yet to be broken so no trade is entered yet but downside still favoured.