Forex Flash: BoE against lower rates, but may push GBP lower – TD Securities

FXstreet.com (Barcelona) - The BoE meeting minutes showed a 9-0 vote in favor of keeping the bank rate at 0.5% and a 8-1 vote in favor of unchanged QE, with only Miles preferring an additional £25bn of QE in November. "The BoE minutes dealt another blow to those who are expecting a reduction in Bank Rate below the current 0.50% level", wrote analyst Marcin Budkiewicz, adding that after consulting the FSA and Building Societies, the cons outweighed the pros in terms of possible consequences of a cut.

"While a lower rate would be beneficial for some existing borrowers, it was also "likely to cause a reduction in the profitability of some lenders, especially building societies," which could weaken their balance sheets and force them to increase other loan rates that aren't linked to the Bank Rate", Budkiewicz added, based on the BoE statement.

In terms of more QE, further easing could be made through coupon transfer payments that would have an effect essentially similar to an equivalent amount of QE. The market is also realizing that the central bank may be getting concerned about the GDP strength. "We may see more efforts at jawboning GBP lower over the coming months if it continues to gain ground". "One the idea of more QE, that decision seems to be increasingly data dependent, and the risk is growing that soft data into February could push the BoE to extend the asset purchase program again", concluded the strategist.