In a media statement following yesterday's monetary policy decision, the Bank of England's Monetary Policy Committee (MPC) announced that it had voted unanimously to maintain the interest rate unchanged at the present level of 0.75 per cent. In doing so, the BOE is the first major central bank to abstain from following the recent trend of cutting the interest rates which other influential central banks have already done.
“Since May, global trade tensions have intensified and global activity has remained soft. This has led to a substantial decline in advanced economies’ forward interest rates and a material loosening in financial conditions, including in the United Kingdom.” [source]
The BOE now weighs in on a no-deal Brexit eventuality following the appointment of Boris Jonson as the new MP, and the MPC recognizes the turbulent period yet ahead of Britain, however, it also projects soothed conditions for investment growth after the Brexit uncertainties get eventually resolved.
“GDP is projected to accelerate to robust growth rates, reflecting a gradual recovery in global growth and firming UK domestic demand growth, driven in large part by a recovery in investment growth as uncertainties dissipate in line with the Brexit conditioning assumption.”
Overall, the MPC recognizes the detrimental effects of the stalled Brexit negotiations, which have caused the BOE to lower its expectations for GDP growth to less than 2 per cent over the next year, however, the committee remains somewhat upbeat about the prospects as the general uncertainty from Brexit starts to disappear and the economic conditions become less volatile. The MPC expects a smooth transition process following the resolution of the Brexit uncertainties, which it projects to be marked by ‘a significant margin of excess demand’.
"Were that to occur, the Committee judges that increase in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainability to the 2% target."
Overall, BOE’s optimism over the midterm and longterm does not give much in support of the collapsing value of the pound, which is continuously reaching new lows as the possibility of striking a good trade deal becomes less and less plausible, as the final Brexit deadline approaches. The GBPUSD pair is currently trading around a major support level of 1.21150, which was last reached in May of 2017. Given the current market outlook and the reluctance of the BOE to implement any immediate changes to its monetary policy, the currency pair is likely to test the historically low level that was reached immediately after the announcement of the Brexit vote.
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