Monetary policy on hold

Once the election is out of the way, the Bank of England (BOE) is set to meet between May 6 and 9. The Monetary Policy Committee (MPC) meeting was delayed by several days because of the election.

Given the proximity to the election and signs a previously overheated housing market had begun cooling, most market watchers believe the BOE will keep rates intact at 4.75 percent at the May gathering. The pound is still a high-yielding currency, boasting positive interest rate differentials vs. many countries, including the U.S., Canada, the Euro zone, Switzerland, and Japan.

While it’s been nine months since the BOE pulled the trigger on a rate hike, some analysts have speculated there is still one more tightening in this cycle. The BOE last raised rates by 25 basis points in August 2004.

“The risk is the possibility of one more tightening,” Rogers says. “I think the housing market has started to slow, but there are still some people who say inflation is a bugaboo.”

Analysts who believe another rate hike is still in the pipeline point to two dissenting MPC members who voted for a rate hike at the April meeting.

Concerns that low unemployment could add upward pressure to wages and overall prices was cited as the main reason for a hike.

“There is definitely some pressure within the BOE to increase interest rates,” notes Sean Callow, currency strategist at Ideaglobal. “There are price pressures relating to oil.”