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3 Way Split On MPC Concerns Markets

As the minutes for last months Bank of England MPC meeting were released it soon became apparent that there is three way split on the committee with one voting to increase rates, one voting to reduce rates and the remaining seven voting to maintain rates at 5%. However, the general opinion outside of the Bank is that rates will fall in the short term to fight the economic decline and as a consequence we have seen sterling lurch lower in the currency markets, nearing the two year low hit last week.

More than anything the markets hate uncertainty because it adds a significant risk to any investment decision while the MPC is so widely split. If the market could sense bad news coming for definite they could price that in and the same for good news, but sitting on the fence is no good for anyone in the markets. So where do we go from here?

While currency markets continue to price in a reduction in UK rates there is a nagging doubt that this may not happen in the short term. It may now be a case of hoping for more bad news on the economic front in order to force the Bank to act, but that would be a little extreme.

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