- As widely expected, the BoE kept interest rates on hold yesterday, warning markets that it will not be rushed in to easing policy as rate setters continue to look for signs that inflationary pressures have eased. MPC members voted by 8-1 to keep rates unchanged at 5% just a day after their colleagues at the Federal Reserves slashed rates by 50bp. The pause was expected, with markets currently expecting the next downward move in interest rates to come at the November meeting. Governor Andrew Bailey said, “We should be able to reduce rates gradually over time” adding, “It’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much.” The policy meeting came just a few days after the latest inflation report which showed that inflation in the services sector remains elevated, creating concern for policymakers. The pound rallied after the event with GBPUSD trading above the psychological 1.33 area and EURGBP dipping below 0.84. Retail Sales data released this morning, has kept cable elevated with the volume of goods sold in stores and online increasing by 1% in August. The print shows that consumers were optimistic at the height of the British summer with shoppers splashing out on food and clothing, taking advantage of the sunny weather. However, a separate report showed that consumer spending in the UK has fallen sharply in September. The headline index fell 7 points to -20, after it has been recovering well and on a gentle uptrend, so this morning’s data is clearly a setback. It appears that the new UK government is to blame for he fall, after warning voters about difficult decisions ahead in the upcoming budget and the withdrawal of the winter fuel allowance for many pensioners.
- Elsewhere, the BoJ kept interest rates on hold at its policy meeting overnight, signalling that it is in no rush to hike rates again as it continues to monitor markets after hiking at the July meeting. The unchanged policy was expected, keeping the Japanese yen muted.
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