An unexpected shift in monetary policy by the Bank of England (BOE) helped drive the sterling to a fresh 2006 high in early August. On Aug. 3, the BOE sent ripples through the forex market with an unexpected 0.25-basispoint (bp) rate hike, which lifted the overnight lending rate to 4.75 percent.
That was the first shift in monetary policy in two years. The BOE’s Monetary Policy Committee (MPC) voted 6 to 1 for the rate hike; meeting minutes revealed concerns about rising inflation expectations.
“The unexpected rate hike produced quite a rally,” notes David Powell, senior currency strategist at Ideaglobal. “Inflationary pressures have increased in the UK and growth reports from previous quarters were revised up.”
The BOE MPC meets next on Sept. 7 and then Oct. 5. Analysts expect the BOE to pause until the Nov. 5 meeting. If upcoming data remains strong, analysts say another 0.25 bp hike could be in the works at that meeting.
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