Pound Sterling: What the Bank of England did today was "absolutely huge"

What the BoE did on the macro prudential side today is absolutely huge.

What we are essentially witnessing is a central bank moving around its new policy levers, basically in real-time, in order to manage the economy for a desired result over the coming 12-18 months.

We look for the run-up to the 2015 general elections to be critical for the GBP, specifically a balance will need to be struck between solid growth and ‘overheated’ growth, as the latter pertains to certain sectors of the economy.  

The macro prudential levers the BoE is now pulling should bear down on the GBP on a 6-12 month basis, as their effects feed through in an iterative fashion – in conjunction with key measures already in train.

For the time being, the net impact of somewhat higher GBP rates and a firmer GBP probably is probably to assist the Bank in achieving its goals.

Along these lines, with the exception of the Fed ‘taper’ issue, with we maintain the view that the notion of an ‘exit’ from unconventional policies by major central banks is rather irrelevant at this stage.  

The goal is not about the ‘smooth exit’, but the ‘smooth’ management of the stimulus already in the system, which could become dangerous if left unchecked.  

The BoE was only formally granted the ability to use macro prudential tools through MPC-FPC policy coordination in April – that’s merely about 8 months ago; a mere 8 months on and the Bank is already moving the levers of policy in the direction of restraint.