BOE cuts bank rate by 25 bps to 4.25%, as expected ...Middle East

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BOE cuts bank rate by 25 bps to 4.25%, as expected
Prior 4.50%Bank rate vote 7-2-0 vs 9-0-0 expected (Dhingra, Taylor voted to cut by 50 bps while Mann, Pill voted to keep bank rate unchanged at 4.50%)There has been substantial progress on disinflation over the past two yearsThat progress has allowed the BOE to withdraw gradually some degree of policy restraintBank rate is still in restrictive territory so as to continue to squeeze out persistent inflation pressuresProgress on disinflation in domestic price and wage pressures is generally continuingDecision to cut the bank rate reflects continued progress in disinflation though with risks to inflation remaining in both directionsA gradual and careful approach to further withdrawal of monetary policy restraint remains appropriateMonetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated furtherFull statement

The votes from Mann and Pill were a surprise and that is leading to a kneejerk jump in sterling. GBP/USD is up to 1.3306 now from around 1.3250 before the decision. In terms of communique, there isn't much change to the statement whatsoever. The BOE maintains that they will continue with a "gradual" and "careful" approach, similar to that in March.

Once again, it will be a repeat of February where the focus and attention will be placed on voting intentions.

    Back then, Catherine Mann voted for a 50 bps rate cut and that surprised markets with the reaction centering on that. This time around, it's the same with Mann voting to keep rates unchanged instead alongside Huw Pill.

    This article was written by Justin Low at www.forexlive.com.

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