Bank of England, GBP price, news and analysis:
- The Bank of England has left UK monetary policy on hold, as economists had predicted, but the minutes of its latest meeting and its quarterly Inflation Report are both modestly hawkish.
- Bank Governor Mark Carney says interest rate increases will be required after a smooth Brexit.
- That is all causing volatile moves in GBP but it could advance near-term.
GBP price volatile on Bank of England caution
The Bank of England kept all its monetary policy settings unchanged Thursday, with Bank Rate left at 0.75% and its buying of UK government and corporate bonds at their previous levels.
However, GBP is volatile after the minutes of the latest meeting of the Bank’s monetary policy committee, which ended today, by the accompanying quarterly Inflation Report and by the opening comments by Governor Mark Carney at his post-meeting press conference, which were broadly neutral.
Chart by IG (You can click on it for a larger image)
The Bank raised its forecasts for GDP growth while warning of the possible impact of Brexit. It now expects growth of 1.5% in 2019, up from its February forecast of 1.2%, and of 1.6% in 2020, up from 1.5%. It sees inflation increasingly above its 2% target and repeated that gradual and limited interest rate rises will be needed to meet that inflation target. It cut its forecast for unemployment sharply.
GBP price still sensitive to Brexit news
Looking further ahead, Brexit news will likely remain the most important factor for traders in GBP to watch. On the plus side, a “no deal” Brexit looks to have been averted for now and there are hopes of progress in the talks between the ruling Conservatives and the opposition Labour Party.
However, UK Prime Minister Theresa May has come under even more pressure this week after sacking Defense Secretary Gavin Williamson for allegedly leaking information from the National Security Council to a newspaper. In addition, local elections taking place in parts of the UK Thursday will likely punish the Conservatives for failing to deliver Brexit on time.
UK economy sluggish
As for the UK economy, the latest data suggest growth remains tepid. Wednesday’s purchasing managers’ index for the manufacturing sector dipped to 53.1 in April from 55.1 in March and the service-sector PMI to be released Friday is expected to show only a modest increase to 50.4.
The next important day for UK data is the following Friday, with statistics on first-quarter GDP growth, industrial production, manufacturing output and trade all on the economic calendar.
Against this background, market pricing suggests that UK interest rates will be on hold for the rest of this year, and a quarter-point increase is not fully priced in until September 2020 – nearly a year after the latest Brexit deadline of October 31, 2019.
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--- Written by Martin Essex, Analyst and Editor