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Bank of England keeps rates unchanged but more hawkish approach seen

The Bank of England left the main interest rate and the current pace of asset purchases unchanged Thursday.

The BoE's monetary policy committee voted 5-3 to maintain the key bank rate at 0.25%.

Government bond purchases, financed by the issuance of central bank reserves, will remain at £435 billion ($554 billion) and corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion, the Bank of England said in a news release Thursday.

Money managers said that although the decision to keep the rates unchanged was not surprising, the MPC is visibly beginning to take a more hawkish approach.

Mike Amey, managing director and head of sterling portfolio management at Pacific Investment Management Co. said: “The minutes strike a surprisingly hawkish tone, not just the three votes for an immediate hike but also the commentary that the decision was becoming more balanced for the committee as a whole. Given the weakness in real income growth, a near-term hike would be a bold move, but this is a useful wakeup call to the market regarding the low level of longer term U.K. interest rates.”

Alan Wilson, senior investment manager of active fixed income at State Street Global Advisors added: “The BoE continues to walk the policy tightrope; balancing transitory inflation pressure against projections Brexit uncertainty will eventually curtail domestic growth.”

“Recently, MPC signaling has been on the hawkish side to encourage the market to dampen inflation pressures on its behalf. Nonetheless, this messaging has been completely ignored, with next-to-no rate hikes priced over the next year. As such, hawkish sentiment on the committee has advanced; given the precarious outlook for the domestic economy, the MPC cannot allow inflation to become entrenched,” Mr. Wilson added.