Following the Federal Open Market Committee meeting on Wednesday, we saw sterling strengthen slightly against the US dollar as the FOMC rhetoric sounded less optimistic than hoped.
Yesterday it was the turn of the Bank of England to release its interest rate decision. As expected, we saw the rate kept on hold at 0.25%. The announcement of the outcome contained a surprise. One of the nine members of the monetary policy committee, Kristin Forbes, had concerns about the path of inflation and voted to raise rates. This is the first time since July 2016 that the vote to maintain rates has not been unanimous.
The announcement aired towards the hawkish side and we may be closer to a rate hike than previously thought. Within the minutes, a hawkish tone can be spotted in this extract: ‘Some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted.’
The central bank cut rates after the Brexit referendum last year to a record low in an effort to fend off a possible economic shock.
Inflation has been a concern of many since we saw a significant drop in the value of sterling. The key measure of inflation is set for release next week, in the form of the consumer price index. Last month it ticked higher to 1.8%. Since then Sainsbury’s has become the latest bulk retailer to warn of the pressure to raise prices.