Why the market is falling on latest United Kingdom interest rate decision

Follow the GBP  USD's BoE Rally or Keep Focus on Brexit

Meanwhile movement in the Australian Dollar is likely to be driven by the Reserve Bank of Australia's (RBA) quarterly statement, with any hint that the bank may be wary of hiking rates likely to led to losses for the "Aussie". Britain's 10-year bond yield rose to 1.6%, reaching a 21-month high after the news that interest rates could be increased faster than expected.

In November, the Bank raised the cost of borrowing for the first time in more than 10 years - from 0.25% to 0.5%.

Policymakers also unanimously chose to maintain the quantitative easing at GBP 435 billion. With unemployment at multi-decade lows and the global economy growing strongly, policymakers at the central bank are concerned that inflation is building.

"The projections also assume that, in the interim, households and companies base their decisions on the expectation of a smooth adjustment to that new trading relationship".

Follow the GBP  USD's BoE Rally or Keep Focus on Brexit

In recent weeks, the minority Conservative government has become increasingly split over how to handle Brexit. While some lawmakers in Prime Minister Theresa May's party want close ties with the remaining 27 European Union nations and a period of transition, others want a more fundamental break that would see Britain diverge more profoundly on regulatory and trade matters.

The MPC said Brexit remained the biggest risk and greatest source of uncertainty to the outlook of the United Kingdom economy.

Reminders remain of the fragility in Britain's economy as it faces up to leaving the EU.

Carney and colleagues said they now wanted to return inflation to its 2 percent target over "a more conventional horizon", a sign they were turning their sights to tackling price growth over two years rather than three.

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The central bank has raised its economic growth projection for the coming year to 1.8 percent from 1.7 percent last time, largely because it has raised its global growth forecast to 4 percent from 3.75 percent.

"Although the MPC voted 9-0 this month in favour of holding interest rates, it has put the prospect of a May rise firmly on the table".

If Brexit talks appear to be going poorly then the BoE may hold off on implementing higher interest rates, thereby frustrating traders who have been anticipating such a policy move. That is expected to push up inflation, according to the Bank.

In November, the bank had signalled it expected two hikes over the following three years.

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Today the Bank signalled that the old conventions of increasing interest rates when inflation is above target would return.

The inflation report forecasts a modest upgrade in growth from its November report, up to 1.8 percent increase in GDP growth this year and 1.7 percent next year. Though a bit out of date, their exchange of letters was also published Thursday. Though financial markets don't expect any change in policy today, markets will be closely watching for the vote and accompanying comments.

But there was a caveat.

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