Bank of England likely to keep monetary policy on hold in May

The Bank of England is set to meet tomorrow for its policy rate decision. According to a DNB Market research report, the BoE is unlikely to adjust actual monetary policy or its guidance during the meeting.

The macro data has been comparatively stable since the central bank’s meeting in March. The CIPS surveys have come in mixed, with services and construction falling to levels below 50, while the manufacturing index has rebounded. The April edition of Consensus Economics shows that the GDP is likely to expand 1.3 percent in 2019 and 1.5 percent next year.

Meanwhile, the headline inflation and core inflation has been stable at 1.9 percent in February and March of 2019. The British pound stayed subdued on a trade-weighted basis. The labor market remains solid, with employment rising 1.5 percent year-on-year and the LFS jobless rate at 3.9 percent. Wage growth appears to have stabilized at about 3.5 percent for the time being, suggesting some upward pressures on inflation going forward, said DNB Markets.

In the meantime, the uncertainty regarding Brexit has lessened, but not removed. The postponement of Brexit until late October of this year suggests that the risk of a hard Brexit has been lowered. Nevertheless, uncertainty about the final agreement and to future trade relationships has not been removed. This uncertainty might continue to be a drag on business investments also in the coming months, and hence add to a dampening of overall economic activity.

However, the Bank of England might still hike the interest rate late this year. In August 2018, the Bank Rate was hiked to 0.75 percent. The market is only pricing in a very low probability of another hike in the year ahead.

“As long as the fundamental conditions are in place and wages pick up, we still cannot rule out a rate hike late this year. However, with the postponement of Brexit, the probability of a hike late this year has probably been reduced”, added DNB Markets. 

At 10:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bullish at 122.172 while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -134.876 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex