On Wednesday the Monetary Policy Committee (MPC) of the Bank of England voted unanimously to maintain the interest rate unchanged at 0.75 per cent. Expectedly, one of the crucial factors that influenced the BOE’s ultimate decision was Brexit, which according to the MPC, caused British assets and the Sterling exchange both to become exceptionally volatile.
“Shifting expectations about the potential timing and nature of Brexit have continued to generate heightened volatility in UK asset prices, in particular the sterling exchange rate has risen by over 3½%.” [source]
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According to them, the Gross Domestic Product is expected to increase by 0.2 per cent in Q3 despite having decreased by 0.2 in Q2, and those fluctuations are attributed to the Brexit-related developments. Given the observed uncertainty in the country, the decision to abstain from implementing any transformational changes to the monetary policy and the interest rate is justified at the current time. The MPC also commented on the recent developments in the global economy:
“Since the MPC’s previous meeting, the trade war between the United States and China has intensified, and the outlook for global growth has weakened. Monetary policy has been loosened in many major economies.”
Thus, the socio-political situation in the United Kingdom continues to weigh in heavily on the economic situation in the country and the BOE attempts to remain as supportive as possible without rushing into unjustified decisions that might prove to be detrimental in the long-term. Brexit remains as uncertain as ever, which is undoubtedly going to trigger further economic disruptions in the near future because of the resulting uncertainty. The MPC might be compelled to implement more drastic changes to its monetary policy once the official divorce date comes and the ambiguity veil is lifted.
Meanwhile, the UK100 is trading at 7327, which is just above the 38.2 per cent Fibonacci retracement level. The index has been trading in a corrective mode since the end of July, which can be attributed to the aforementioned Brexit woes. According to the Elliott Wave Theory, the price of the index looks set to test the significance of the 61.8 per cent Fibonacci Retracement Level next.
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