The pound climbed as the Bank of England kept interest rates unchanged, prompting speculation that the central bank may take a more careful approach in its measures to support the United Kingdom economy after the nation's vote to leave the European Union.
The nine-member Monetary Policy Committee, led by Governor Mark Carney, voted 8-1 to keep the benchmark at a record low 0.5 per cent, with only Gertjan Vlieghe saying the outlook justified an immediate reduction.
United Kingdom stocks charged higher Thursday, with broad-based gains arriving ahead of what could be the first interest-rate cut by the Bank of England in seven years.
Markets will remain on tenterhooks after the Bank of England made a decision to maintain interest rates, when a cut was widely expected. The central bank also unamimously voted to leave its quantitative easing program unchanged, but signalled further easing in August.
Sterling jumped 1.5% against the dollar to $1.334 following the Bank's announcement, which confounded investors, who had been pricing in an 80% probability of a rate cut.
The decision to hold rates helped extend the pound's rally from a 31-year low versus the dollar.
Many big banks, economic forecasters and rating agencies have already slashed their forecasts for growth in the United Kingdom following the vote to leave. Simon Smith, Chief Economist at FXPro says there's not much advantage in the central bank waiting until August to move on rates.
London's FTSE 100 stock index was up 0.8% ahead of the bank's announcement, hitting a fresh 11-month high.
"The precise size and nature of any stimulatory measures will be determined" next month, the statement said.
"In minutes released alongside the decision, the Bank said most members of the MPC expect monetary policy to be loosened in August".
The Bank of England refrained from cutting interest rate on Thursday despite "Brexit" vote, as the majority of policymakers considered it appropriate to wait for more assessments from the August Inflation Report.
"By then, Carney and his colleagues will have a few extra post-referendum data points to digest as well as a new set of forecasts", Diggle said.
The Bank of England announced it would not provide additional stimulus while signalling it stood ready to do so next month.
"In terms of the big theme, we're seeing a little bit of confidence in the overall market", said Scott Smith, senior corporate FX trader and market analyst at Cambridge Global Payments.
Philip Hammond, Britain's new Treasury chief, acknowledged that the Brexit vote had caused "at least a temporary loss of confidence in the business community".
"Some fiscal stimulus would be welcomed and the newly appointed prime minister, Theresa May, seems open to the idea".
Ahead of last month's European Union referendum, Hammond's predecessor George Osborne suggested an emergency budget would be required in the event of a Brexit vote because of the risk of recession.