GBPEUR/GBPUSD

The Pound received an unexpected boost at midday today, as the Bank of England raised its bond-purchasing program by just £25 billion, the third increase since March. Policy makers are trying to cement the economic recovery, witht he UK economy still languishing in the worst recession on record.

The nine-member monetary policy committee, led by the governor Mervyn King, took the decision to raise the amount of bonds it will purchase with newly created money to an unprecedented £200 billion. That represents a smaller amount than many economists had anticipated and the Pound subsequently rallied against all 16 of the most actively traded currencies.

In the accompanying statement, the Central Bank said that "on balance, the committee believes that the prospect for a slow recovery in the level of economic activity, so that a substantial margin of under-utilised resources persists. That will continue to bear down on inflation for some time to come."

The Bank of England also maintained the benchmark interest rate at a record low of 0.5%, while the European Central Bank meet at 12:45 and will also leave borrowing costs on hold at 1%. The Pound may struggle to hold on its recent gains made against the Euro, if the ECB chairman Trichet gives any indication that Europe are preparing to exit emergency stimulus measures.

written by Adam Solomon

Labels: daily-insight