James Knightley, Senior Economist at ING, notes that the Bank of England has left monetary policy unchanged, as widely expected. Key Quotes “Bank Rate remains at 0.5% and the size of the Asset Purchase Facility is kept at £375bn. The vote was unanimous in favour of this outcome. The UK’s referendum regarding its membership of the European Union is heavily referenced in the minutes to the meeting (it get 17 mentions in the minutes versus five mentions last time). They highlight recent surveys suggesting that Brexit uncertainty is leading to a reduction in investment while demand for credit has reportedly slowed. The BoE also believe that it is possible that “referendum-related uncertainty would have a more pronounced effect on household sentiment and behaviour as the vote drew nearer”. They added that “referendum effects were likely to make macroeconomic and financial market indicators harder to interpret over the next few months. As a result, the Committee was likely to react more cautiously to data news over this period than would normally be the case”. As such we are just sitting and watching until the referendum result is called. Our house view remains that if the UK votes to stay in the EU we will see delayed hiring and investment plans being implemented in 2H16. Inflation is creeping higher with the steep sell-off in sterling set to push up imported inflation. Then, with the number of job vacancies now exceeding the number of people claiming unemployment benefit we think it is only a matter of time before wages start to push higher, which will add to that medium-term inflation threat. Given the underlying strength of the economy and rising medium-term inflation pressures we still think a November rate hike is possible. However, should the UK vote to leave the next move is likely to be a rate cut as policymakers try to shore up confidence. We expect sterling to fall sharply, which would push up inflation temporarily, but the expected hit to economic activity in an environment where business and consumer sentiment is severely strained suggests that the BoE will “look through” this. Instead, policymakers will focus more on the uncertain prospects for the economy now that its future is in the hands of politicians as the UK looks to secure trade deals that could take many years to negotiate.” For more information, read our latest forex news.