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GBP Price Falls as Bank of England Leaves UK Interest Rates Unchanged

GBP Price Falls as Bank of England Leaves UK Interest Rates Unchanged

Martin Essex, MSTA, Analyst

GBP price, news and analysis:

  • The Bank of England has kept its benchmark Bank Rate at 0.75% and its bond-buying programs unchanged, as expected.
  • However, the GBP price eased back as the UK central bank said Brexit uncertainties are intensifying.

GBP price, UK interest rates and Brexit

The Bank of England’s monetary policy committee has voted unanimously, 9-0, to keep its benchmark Bank Rate unchanged at 0.75%, its purchases of UK gilts (government bonds) at £435 billion and its buying of corporate bonds at £10 billion. The decisions were all in line with forecasts.

However, GBPUSD dipped back below the 1.27 handle as the UK central bank said that Brexit uncertainty has “intensified considerably” over the last month and that falling oil prices are likely to push inflation below its 2% percent target soon.

Minutes from the MPC meeting showed growing unease about the turmoil surrounding the UK’s divorce from the EU, due on March 29 next year, and it was those comments that hit the Pound.

GBPUSD Price Chart, 5-Minute Timeframe (December 19-20, 2018)

Latest GBPUSD price chart.

Chart by IG (You can click on it for a larger image)

Bank of England forecasts

The MPC forecast that UK inflation will likely drop below 2% in coming months because of falls in oil prices, to around 1.75% in January. It reiterated that an ongoing tightening of monetary policy remains appropriate but lowered its forecast of fourth-quarter UK GDP growth to 0.2% quarter/quarter from 0.3%.

It added that growth could remain at 0.2% in the first quarter of next year and said downside risks to global growth have increased.

UK data positive

In the meantime, UK economic data released this week have been broadly positive. Retail sales figures for November, published this session, showed sales well above expectations – thanks to Black Friday buying – despite concerns about a possible slowdown in pre-Christmas business. Inflation numbers, published yesterday, showed another fall year/year and public sector borrowing data, due tomorrow, are predicted to show declines.

Normally, that would be positive for the GBP price but the figures are currently having less impact than usual because of concerns about a possible hard Brexit when the UK leaves the EU on March 29 next year.

More to read:

GBPUSD Price Edging Ahead Despite Growing Risk of No-Deal Brexit

Brexit Timeline - The Path Ahead

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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