The Bank of England minutes for the month of June showed that the decision to keep interest rates at 0.5 percent was not unanimous as policy maker Andrew Sentance said it is appropriate to “gradually withdraw” BOE stimulus measures amid inflation risks. This is the first time in seven months that the decision was not unanimous.

In addition, the MPC said that U.K.’s growth momentum may be more than previously thought, while the majority of the members said the balance of risks signaled for no change. Indeed, the committee recognized that it will take a while for inflation to return to the central bank’s 2 percent target, however, the overall view of the U.K.’s medium-term outlook for consumer prices remain relatively unchanged from its previous meeting. Only eight members voted  for the rate decision as one individual was absent. Today’s meeting follows the emergency budget in which we saw Chancellor of the Exchequer Osborne aim to restore the fiscal surplus in 2015. Highlights of the budget include the main rate of the value-added sales tax increasing to 20 percent from 17.5 percent beginning January 2011, while tax payers on higher rates will pay 28 percent capital gains tax. The impact increase in the VAT will likely weigh on consumer spending.  In addition, there will be a bank levy which will apply to banks balance sheets and once fully in place, is expected to generate 2 billion pounds of annual revenues. This adds concern for the U.K. economy as tax increases and spending cuts may cause the country to slip back into a mild recession. However, worth noting is the cut in the corporate tax rate from 28 percent to 27 percent in 2011, and 26 percent in 2012. The cut may provide some support to business investment.  To discuss this and other topics, please visit the GBP/USD forum.

Related Articles:

Chancellor of the Exchequer Osborne Confirms U.K. Will Not Join the Euro, Pledges to Cut Deficit

Written by Michael Wright, Currency Analyst
To Receive Future Articles by Email, please contact me at mwright@fxcm.com
Michael Wright is the author of FX Headlines, Fundamentals vs. Technical’s, Weekly Spotlight, and Forex Trading Weekly Forecast
 

Recent Articles By DailyFX:

• NZ Dollar Gains On China Growth Prospects, G8 Summit Keeps Euro Low
• Crude Oil, Gold Aim Higher As Risky Assets Mount Relief Rally
• Commodity Prices Have Scope To Rise Into The End Of Trading Week
• Yen Top Performer As Aussie, Euro Stabilize; Sterling Tumble Continues
• Crude Oil, Gold May Recover As Greece Eurozone Exit Fears Digest
• All Articles By DailyFX »

Leave A Comment :