London Markets: The pound climbs above $1.37 and U.K. equities slip after Bank of England decision

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The market gave a hawkish interpretation to the latest Bank of England rate decision, in which one member defected to the camp of wanting to end bond purchases immediately, and a majority said a rate rise could occur as early as this year.

The Bank of England voted 9-0 to keep interest rates at 0.1%, and 7-2 to maintain its bond purchase program. Dave Ramsden joined Michael Saunders to vote against the QE program, in a bit of a surprise.

The asset purchase program of up to £875 billion is due to be completed by the end of the year, but the minutes indicated that the seven-member majority thought “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 U.K. government bond asset purchase programme.”

The majority wants to wait until it can observe the impact of the expiration of the Coronavirus Job Retention Scheme next week. “The outlook for the labour market, and hence underlying inflationary pressures, was particularly uncertain, and that some of this uncertainty should be resolved over coming months. Hence, there was a high option value in waiting for that additional information before deciding if and when a tightening in monetary policy might be warranted,” the majority believed, according to the minutes.

The pound
GBPUSD,
+0.72%

traded at $1.3711, vs. $1.3618 on Wednesday. The U.K. FTSE 100
UKX,
-0.00%

swung into negative territory, underperforming other European stock markets.

The yield on the 2-year gilt
TMBMKGB-02Y,
0.370%

rose to 0.36% from 0.28%.

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