Investing.com – As expected, the Bank of England (BoE) decided on Thursday to hold interest rates steady at a record low as well as to make no changes to its asset purchase program.
Specifically, the BoE left the benchmark interest rate at a record low of 0.25%, in line with market forecasts.
Also as expected, the decision to maintain interest rates was undertaken in a vote with 6 members in favor and 2 opting for a rate hike.
The two hawkish members of the BoE’s Monetary Policy Committee (MPC) Michael Saunders and Ian McCafferty repeated their call for an increase interest rates.
Furthermore, all MPC members agreed to leave its asset purchase program unchanged as expected at £435 billion as well as to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion.
The minutes from the meeting showed that members generally expected a smooth transition as the UK negotiates its departure from the European Union (EU), known as a Brexit.
With regard to policy, and despite keeping rates on hold, the minutes showed that the MPC now expects two hikes over the forecast horizon, an increase from their prior call for just one.
The members believe that currency depreciation effect will continue to put upward pressure on inflation and that household consumption could be higher than they previously forecast in the May.
They also noted that the positive global economic environment should offset domestic uncertainty.
Even so, the MPC unanimously agreed that increases in interest rates should be at a “gradual pace and to a limited extent”.
Separately, the inflation report revealed that the BoE cut both its growth and inflation forecast for the UK.
The BoE cut its forecast for growth in 2017 to 1.7% from the prior 1.9% and to 1.6% from the previous 1.7% for next year. It left its forecast for the expansion in 2019 unchanged at 1.8%.
Meanwhile, the BoE also lowered its estimates for inflation one year from now to 2.58%, from the prior 2.64%, to 2.19% from the previous 2.20% two years out and, in three years, to 2.22% from the prior 2.26%.
Investors will now turn their attention to BoE governor Mark Carney’s press conference at 8:30AM GMT (12:30GMT) for further explanations on the future path of UK monetary policy.
Following the release, GBP/USD traded at 1.3162 from around 1.3239 ahead of the publication, EUR/GBP was at 0.8993 from 0.8939 earlier, while GBP/JPY traded at 145.45 compared to 146.48 before the announcement.
Meanwhile, European stock markets showed mixed trade. London’s FTSE 100 rose 0.58%, the Euro Stoxx 50 gained 0.07%, France's CAC 40 traded up 0.40%, but Germany's DAX fell 0.23%.