Some slight hawkish undertones as the BOE prepares itself for the possibility of a rate hike, if need be
The pound is getting a lift after the BOE decision today as they stuck with the status quo for the most part but also offered up some hawkish elements for the bulls to chew at.
Cable is up to test 1.3700 currently from around 1.3680 earlier, pushing past its 100-hour moving average at 1.3675 and opening up space to roam between that and its 200-hour moving average seen at 1.3750.
Back to the BOE, here are some key things to take note of:
Slight change to the forward guidance
This was before:
The Committee judges that, should the economy evolve broadly in line with the central projections in the August Monetary Policy Report, some modest tightening of monetary policy over the forecast period is likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term.
And now after (bolding the key change):
At its previous meeting, the Committee judged that, should the economy evolve broadly in line with the central projections in the August Monetary Policy Report, some modest tightening of monetary policy over the forecast period was likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term. Some developments during the intervening period appear to have strengthened that case, although considerable uncertainties remain. The Committee will be monitoring closely the incoming evidence regarding developments in the labour market, and particularly unemployment, wider measures of slack and underlying pay pressures; the extent to which businesses pass on wage and other cost increases, as well as medium-term inflation expectations.
The fact that they mentioned that there are developments strengthening the case for tightening is certainly noteworthy and no doubt it has come from the inflation front.
Hiking rates may come before QE ends
A key message that may go unnoticed was this part in the statement summary:
All members in this group agreed that any future initial tightening of monetary policy should be implemented by an increase in Bank Rate, even if that tightening became appropriate before the end of the existing UK government bond asset purchase programme.
That signals that policymakers may be ready to intervene in case inflation threatens to surge higher and create a risk to the BOE view/outlook in the medium-term.
Ramsden joins Saunders in dissenting
And perhaps the most striking thing in all of this is Dave Ramsden joining Michael Saunders in dissenting and preferring to reduce the stock of government bond purchases from the current pace of £875 billion to £840 billion.
All things considered, these are subtle messages but if the BOE is going to be delivering any rate hikes to counter inflation, I'd expect policymakers to be more explicit about that in the coming weeks/months.
That will be an upside risk to watch out for in the pound moving forward.