The FTSE led the charge higher in Europe as investors cheered a more dovish sounding BoE. As expected the Bank of England kept rates on hold in an unanimous vote. However, the central bank struck a more dovish tone, indicating that it’s next move could be a rate cut rather than a hike. Up until now the BoE had retained a hawkish bias; today that was replaced with a slightly more dovish stance as the UK central bank joins the other central banks around the globe with a more cautious outlook.
The BoE highlighted concerns over low levels of inflation and policy makers were concerned that a cut may be needed to prevent inflation tumbling lower.
The BoE still believes that a smooth Brexit is the most likely outcome; in this scenario a rate hike may still be necessary. However, the central bank, for the first time, also homed in on a third possibility – continued Brexit and political uncertainty. This scenario, which is currently looking like the most probable outcome, as Boris Johnson battles Brexit out with Parliament and the Courts, would most likely reduce inflationary pressures. In short if we carry on how we are in terms of Brexit uncertainty, then a rate cut would be required.
Following the dovish tone from the BoE, the FTSE has continued to pace higher. There is nothing like the prospect of cheap money to get equities moving! Oil was also giving the UK index a boost. Brent traded over 1.5% higher as tensions flared up again in the middle east; oil majors are tracing the black gold higher.
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