James Knightley, Senior Economist at ING, notes that the Bank of England has left Bank Rate unchanged in a unanimous decision with Ian McCafferty no longer voting for a 25bp rate rise. Key Quotes “The minutes and the Inflation Report place significant emphasis on the recent financial market turmoil and the concerns about an external demand slowdown, particularly in emerging markets. The plunge in commodity prices and the fact wages have not risen as quickly anticipated means that inflation “is likely to remain below 1% until the end of the year” according to the Bank. Indeed, it was this disappointment on wages that led to Mccafferty changing his call. Domestically, the BoE remain relatively upbeat on the growth story, but steer clear of mentioning the Brexit referendum directly, which we think will weigh on growth. Consequently, given the lack of clarity on the near-term outlook it is no surprise to see the Bank want to keep policy steady until the situation stabilises. However, the Inflation Report projections suggest that based on steady monetary policy, inflation is likely to move above the 2% target on both a 2Y and 3Y horizon (2.27% and 2.51% respectively). We think the weakness in sterling could contribute to even higher inflation readings. Currently, financial markets aren’t pricing in a move by the Bank of England until 2018. Should Chinese stimulus efforts yield some results in the second half of the year (which is our house view), financial markets stabilise and the UK votes to remain in the EU then we are likely to see financial markets dramatically re-price the outlook for monetary policy. However, there are lots of things that could go wrong there, which would necessitate us changing our November 2016 rate hike call.” For more information, read our latest forex news.