6-3 Vote To Keep BoE Rates Unchanged

As with February’s MPC meeting, the committee voted 6-3 in favour of keeping rates unchanged at the historic lows of 0.5%. The 3 is made up of Dale and Weale calling for a 25bps hike while Sentence continues to argue for a 50bps rise. They also voted 8-1 to keep the quantitative easing programme at GBP200bn with Posen as usual wanting an additional GBP50bn added. The main comments from the extensive minutes were for inflation likely to rise further with “significant risk” it will exceed 5% in the near-term. This comes as little surprise following yesterdays higher than expected CPI and RPI figures showing producer prices rising 4.4% over the last year. Other comments assert that recent events have increased uncertainty about the medium term outlook for growth. Sterling has weakened on the back of these announcements as the growing uncertainty over whether the bank can increase interest rates to curb the surging inflation remains dominant and thus, brings the end of a positive start to the week for Sterling. From 12:00, George Osbourne will announce his first official budget (the previous one was an emergency budget after the election). While the budget gains more press inches than the MPC minutes, it rarely moves the markets significantly as most policies are well known and priced in before the annoucement. The most important event for the Forex markets over the coming trading sessions will be this afternoon's Portuguese parliamentary austerity vote. This could not have happened at a worse time for the Eurozone, in a week jammed full on meetings and summits to all intent and purpose to sign off an agreement for stabilising the region's funding crisis. A negative outcome at this afternoon's vote could very well precipitate Portugal having to seek external financial assistance, and this is certainly the thought in the credit markets with the 10-year German/Portuguese bond spread widening sharply this morning. If the Eurozone leaders, at tomorrows summit meeting fail to ‘tie up the remaining loose ends' of the new financial rescue mechanism, then a reversal of the Euro's fortunes could well be on the cards. It is a quiet day in the US with just US new home sales this afternoon to capture the attention. Recent comments from Federal Reserve board members are erring on the side of there being no need for further asset purchases by the Central Bank which, hot on the heels of the Treasury's move to selling a portfolio of Mortgage Backed Securities, implies the next monetary adjustment will be a tightening. Still no reflection of higher rates in the US short term market, but the seed of an idea is being planted.