What was expected to be a dry Bank of England decision turned out to be more dovish than expected, sending the pound and yields on U.K. government debt lower on Thursday.
The Bank of England didn’t alter interest rates or its quantitative easing program, as markets had expected. But minutes from the meeting showed it discussed how it could implement negative interest rates if needed.
Also dovish was a commitment not to lift interest rates until there is “clear evidence” that significant progress was being made eliminating spare capacity and achieving the 2% inflation target “sustainably.” The new language is similar to the U.S. Federal Reserve’s new average inflation targeting strategy. The Bank of England also said it was ready to bolster its purchases of government debt if needed.
The pound GBPUSD, -0.67% fell as low as $1.2885 after the decision, from $1.2969 on Wednesday. The yield on the 2-year gilt TMBMKGB-02Y, -0.112% fell further into negative territory, to -0.096%. Yields move in the opposite direction to prices.
The FTSE 100 UKX, -0.47% was still lower on the day in the wake of the Federal Reserve decision, but the main stock market index trimmed losses to 0.5%.