"Sterling slides after Bank of England holds policy steady, hints at inflation concerns"

" \n Sterling retreated on Thursday after the Bank of England kept its monetary policy unchanged, but vowed to monitor rising inflation as the U.K. economy emerges from its Covid-induced slump. \n \n\n \n The central bank\u2019s Monetary Policy Committee voted unanimously to keep the main lending rate at a historic low of 0.1%, and a majority voted to maintain asset purchases at the current level of \u00a3895 billion ($1.24 trillion). \n \n\n \n The pound initially fell by more than 0.5% against the dollar, slipping below the $1.39 mark having tested $1.40 in the previous session. However, it recovered some of the losses to trade at $1.3920 around two hours after the decision. \n \n\n \n Britain\u2019s FTSE 100 stock index, which often moves conversely to the currency, was up by around 0.5%. Economists noted that there was no major hawkish shift despite the mention of inflation risks. \n \n\n \n The Bank noted that \u201cdevelopments in global GDP growth have been somewhat stronger than anticipated\u201d since its last report in May. It added that global price pressures have picked up further. \n \n\n \n Looking ahead, it stated that the committee expects the economy to experience a temporary period of strong GDP growth and above-target inflation, \u201cafter which growth and inflation will fall back.\u201d \n \n\n \n However, it added:\u00a0\u201cThere are two-sided risks around this central path, and it is possible that near-term upward pressure on prices could prove somewhat larger than expected. Taking together the evidence from financial market measures and surveys of households, businesses and professional forecasters, the Committee judges that UK inflation expectations remain well anchored.\u201d \n \n\n \n Outgoing Bank of England Chief Economist Andy Haldane was the dissenting voice in his final meeting as a member of the MPC. Haldane has previously warned that the \u201ctiger of inflation\u201d is incoming and urged the Bank to cut its quantitative easing by \u00a350 billion at the last meeting in May. \n \n\n \n \u201cThere were no real signs that it is thinking about tightening policy sooner, a la the Fed. We think policy will be tightened much later than the mid-2022 date the markets have assumed,\u201d Paul Dales, chief U.K. economist at Capital Economics, said in a research note. \n \n\n \n Hinesh Patel, portfolio manager at Quilter Investors, said the Bank was approaching something of a \u201csliding doors moment\u201d as it continued to hold a wait-and-see approach. \n \n\n \n \u201cBy headline measures, there is no longer any need for the levels of quantitative easing that markets have become so addicted to,\u201d he said. \n \n\n \n \u201cHowever, with every one in four pounds of public spending coming from borrowing without indirect support from the Bank debt sustainability will be ever-more problematic in the future.\u201d \n \n\n \n Patel suggested that while headline economic growth looked strong, the Bank was right to hold fire. \n \n\n \n \u201cWe still need to see the full impact of furlough ending and any structural unemployment that emerges, as well as better understanding transitory vs persistent inflation, before it would be appropriate to act,\u201d he added. \n \n\n \n Inflation surge \n \n\n \n The MPC has not altered its policy settings since Nov. 5, 2020, when it increased its bond purchase target from \u00a3745 billion to its current \u00a3895 billion, while the 0.1% Bank Rate has remained unchanged since March 2020. \n \n\n \n U.K. consumer price inflation came in at 2.1% in May, exceeding forecasts and surpassing the bank\u2019s 2% target for the first time in almost two years, while core inflation rose from 1.3% in April to 2% in May. \n \n\n \n While the market was not expecting any changes to policy on Thursday, the Bank\u2019s view of inflationary pressures and clues about its future tightening schedule were in sharp focus. These CPI figures represented a sharper incline than previously expected by the Bank, according to minutes from the last meeting. \n \n\n \n The U.S. Federal Reserve last week surprised the market with a hawkish shift, upping its inflation expectations and bringing forward its rate hike schedule to project two increases in 2023. \n "

"Sterling slides after Bank of England holds policy steady, hints at inflation concerns"

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