Currency Watch: Bank of England surprises a few with a hold on QE

Central bank action has largely been the focus this week, with a few analysts ending up with egg on their faces following the Bank of England (BOE) meeting on Thursday.

Predictions that the Bank of England would increase its asset purchase program this month had amplified since the publication of the most recent minutes had showed that three members of the MPC, including the Governor, had voted for a hike in Quantative Easing (QE) of around £25bn.

As of Thursday morning, 11 of the 39 analysts surveyed by Bloomberg, had predicted some change today, with most forecasting a £25bn increase and a couple expecting a move of £50bn or £75bn. This is also the 4th anniversary of rates hitting 0.5% for the first time, it could easily be another four years until they increase it again.

Data coming out of the UK has not got materially worse since the most recent decision, but the relative weakness of the Funding for Lending Scheme had prompted many to forecast that the BOE would ‘pull the lever’. However, I think the Bank will now hold on policy until Mark Carney takes the reins of the MPC in July.

The short term spike that sterling received could be seen as a good opportunity for US dollar and euro buyers to take advantage of, before we potentially head back into the downward spiral we have seen witnessed since the beginning of the year.

It will be interesting to know how many members actually voted for further QE, this we will find out in 2 weeks’ time when the minutes are posted. However, despite many calling a further bazooka from Mervyn King and the MPC this week, instead we didn’t even get a water pistol. Sterling has been buoyed by this decision somewhat, and now needs some positive data to continue its tentative recovery.

Jeremy Cook is chief economist at World First foreign exchange