What did we learn from the Bank of England last week?

Easy to overlook

Taking place amid the US election drama it was easy to overlook. The Bank of England met last week on November 05. They kept interest rates unchanged at 0.10% at their last meeting as expected, but increased asset purchases more than expected. Asset purchases were expanded by £150 bln vs the £100bln expected. However, the reaction out of the meeting was a rising pound despite the increase in asset purchases (normally GBP negative). Why? This was due to a luke warm sentence on negative rates. The Bank of England said that 'participants attack some weight to the possibility of a negative bank rate'. Investors had been hoping for a more enthusiastic move towards negative rates. However, given the fact that the BoE have asked commercial banks to report back to them on the the profitability on negative rates thy would most likely wait to hear back from them before deciding on negative rates one way or the other. The deadline for hearing back was after the last meeting, so makes sense why the BoE were pretty neutral.

Furthermore, the Chief Economist, Andy Haldane is not overly keen on negative rates and this makes sense as their value is far from clear from other central banks that have used them.

The bottom line

Indifference on negative interest rates caused the GBP to rise. The trigger for a sentiment shift on the GBP in terms of monetary policy will factor around the willingness for the BoE to use negative rates. If the path to negative interest rates is opened up,expect GBP weakness. If the path to negative interest rates is blocked, expect GBP strength.