The Bank of England kept the Bank rate on hold today at 0.75 percent. The BoE voted unanimously to maintain the Bank Rate and the stock of bonds unchanged during the meeting today. According to BoE, the downside rise to growth has risen recently. Global financial conditions have tightened markedly, especially for credit markets.
Moreover, Brexit uncertainty has deepened significantly since the prior meeting in November. Meanwhile, inflationary pressure has been rising, with wage growth rising up more than anticipated in November. BoE stated that the current monetary policy stance is appropriate but that it would be dependent on the Brexit process in the months ahead. The response might be in either direction according to the MPC.
According to a DNB Market research report, there would unlikely be any monetary changes until Brexit process has been clarified. In the case of a soft Brexit, the central bank would possibly continue to hike rates gradually as wage costs would continue to rise.
Nevertheless, GDP might strengthen in such a scenario, dampening inflation going forward. A hike is now expected in late 2019. This depends on a soft Brexit.
“In the case of a hard Brexit, which seems less likely, strong negative effects to the economy will imply the need for rate cuts rather than hikes. A weakening of GBP will likely imply a positive shock to inflation, but BoE will have to see through such a shock”, added DNB Markets.
At 14:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at 41.6799, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -12.275. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex
