LONDON, Dec 18 (Reuters) - The Bank of England cut interest rates on Thursday after a narrow vote by policymakers, but it signalled that the already gradual pace of lowering borrowing costs might slow further.
The pound jumped as much as 0.16% to a session high of $1.34 immediately after the decision, while two-year gilt yields, the most sensitive to shifts in expectations for British monetary policy, reversed an earlier fall to hit 3.762%, showing a 4.5-basis point rise on the day.
UK equities dipped,
leaving both the blue-chip FTSE 100 and the mid-cap FTSE 250 flat on the day.
COMMENTS:
NEIL PARKER, HEAD OF ECONOMICS AND MARKET STRATEGY, MONEYCORP, LONDON:
“It wasn’t the huge surprise that some were hoping for."
"Markets have pared back their pricing for interest rate cuts from here. We don’t get another cut fully priced until the June meeting, whereas previously it had been expected in April. If there is a reaction in sterling to rally, it will be perfectly predictable.”
JEREMY BATSTONE-CARR, EUROPEAN STRATEGIST, RAYMOND JAMES INVESTMENT SERVICES, FRANCE:
"Today's decision by the Bank of England’s rate-setting Monetary Policy Committee to cut the base rate by a further 0.25%-points to 3.75% has come as little surprise.
While the MPC’s job is to set the UK base rate with regards to the future, the decision was taken with the clarity provided by confirmation of the contents of the Chancellor’s Budget package, a softening economy and lower than anticipated inflation data. All of which meant that earlier arguments against policy loosening were on increasingly thin ice.
Today’s rate cut is unlikely to be the last, and confirmed in the accompanying statement providing encouragement for businesses and further relief for households grappling with a relentless cost of living crisis."
KALLUM PICKERING, CHIEF ECONOMIST, PEEL HUNT, LONDON:
"My hunch is this is somewhat doveish in language, not doveish in the vote, though.
Markets are taking it a bit hawkish, sterling is up a bit, yields have jumped. I think some people in markets, including me, were hoping that we would get a 6-3 (vote split), that one of the hawks would have abandoned the hold and gone for a cut.
For me, the key points are that inflation is falling back a bit faster than the Bank of England had expected and what you have here is a strong signal that the Bank Rate is likely to fall a little bit faster, which means it opens the door for successive cuts.
I don’t think the Bank of England is going to be willing to tolerate slow growth under its potential estimate once inflation is clearly on track to hit 2% and we're getting to that point faster due to these downside surprises to inflation."
(Compiled by Amanda Cooper; Editing by Phoebe Seers)
