The Bank of England Minutes showed the MPC unanimously agreed to keep the benchmark interest at the record-low, but voted 6-3 to increase the scope of the asset purchase program by GBP 50B to GBP 175B earlier this month.
Governor Mervyn King, along with Timothy Besley and David Miles pushed for a GBP 75B expansion in an effort to support an economic recovery, with the statement going on to say that ‘all members agreed that substantial further asset purchases were needed over the next three months’ as policymakers expect inflation to remain below the 2% target until 2012. The board maintained a dovish outlook for price growth and projects inflation to slip below an annual rate of 1.0% this year, and went onto say that ‘insufficient stimulatory monetary policy’ could hamper the prospects for a sustainable recovery as the outlook for future growth remains uncertain. Meanwhile, the central bank noted that ‘the most immediate downside risks to the economy seems to have receded,’ while the rate of money growth remained surprisingly weak, and the BoE may take further steps to steer the economy out of the recession as price pressures remain subdued.
As a result, the British pound tumbled lower against its currency counterparts following dovish outlook held by the central bank, and slipped back below the 50-Day moving average (1.6464) to retrace the previous day’s advance against the U.S. dollar. However, the overnight decline looks to have stalled at an intraday low of 1.6375, with the pair holding above the weekly low (1.6275), and a rise in U.K. retail sales may push the GBP/USD higher over the next 24 hours of trading as growth prospects improve.
