Breaking News: Bank of England Leaves Rates Alone

The Bank of England (BOE) has just announced they are leaving the key lending rate and its asset purchase program unchanged today. This was a heavily divided Monetary Policy Committee (MPC) decision as more and more members were calling for a change in monetary policy.

The BOE elected not to add any more to their asset purchase (QE) program which stands at £375 billion, no surprise here. They also elected to keep their benchmark interest rate at the record low of 0.5 percent, even though there is growing pressure for them to change policy. The British Sterling fell to session lows right after the announcement and is currently trading at 1.64501 versus the U.S. Dollar at the time of this report.

Even though they made no changes, they are poised to make a move in the near future. Two of the MPC members vote for a rate hike in August. The consensus remains they will hike rates within the first quarter of 2015. We are waiting for these minutes to be released on September 17 to see how divided the members are. Till then we will have to be patient. These minutes will be key to future investment strategies, especially in the Forex market. We are expecting at least two of the nine members wanting to change policy now. We could actually see a change before February of 2015.

While the European Central Bank (ECB) is waging war against a deflating euro, the BOE is battling with improving economic data a falling unemployment rate. This is adding fuel to the fire they will pull the trigger sooner than later to normalize policy before any of the other Western central banks. Right now, the BOE is more worried about the “unprecedented” growth in wages. This is troubling BOE Governor Mark Carney.

Carney feels this is more important, as a metric, than unemployment. In a recent interview with Bloomberg, Mr. Carney said that there is “no case for an interest rate hike” for right now. He, and other economists in England, remained baffled as to why wage growth is so low. The data shows that firms and companies want to hire new employees, but they do not want to have to pay higher salaries.