The pound has fallen following a rare statement by the Bank of England’s Monetary Policy Committee, headed for the first time by new governor, Mark Carney.
After confirming there would be no change to its monetary policy stance this month, the committee indicated that current City forecasts for a rise in the base rate of interest next year looked premature, according to a Sky News report.
It said: “In the committee’s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.”
The statement prompted a sharp fall in the pound against the US dollar and euro and a big rise in the FTSE 100 Index amid increased hopes that monetary policy will remain loose, with rates remaining at their record low of 0.5% for longer than expected.
However, evidence that the UK’s economic recovery is gathering pace is expected to have been a force behind the Bank of England maintaining
QE at £375bn for now.
Pound V Dollar The pound’s value is currently very disappointing for travellers to the US
Recent economic data has suggested in unison that the speed of
recovery has accelerated – with the British Chambers of Commerce the
latest group to upgrade its growth expectations for the second quarter
of the year and 2013 as a whole.
The closely-watched Purchasing Managers’ Index surveys also pointed to growing output in manufacturing, construction and the crucial service sector – which recorded its fastest rise in activity in two years last month.
The slew of positive news is likely to have dispelled any immediate pressure for the bank to increase its QE programme — allowing Carney some breathing room.
Other members of the nine-strong MPC repeatedly thwarted his predecessor Sir Mervyn King’s efforts to boost QE by £25bn during his final months, as five times he was defeated by a 6-3 majority.