Image source: Shao-Chun Wang © 123RF.com
The Monetary Policy Committee (MPC) of the Bank of England voted by a majority of 7-2 on Thursday to maintain the current interest rate of 0.75 per cent unchanged during November.
Despite the anticipated outcome from the monetary policy meeting, which ultimately met the initial market forecasts, an apparent widening gap of opinions among the Committee members was observed following the release of the monetary policy statement.
This is the first instance of MPC members voting for a reduction of the interest rate since the 4th of August 2016 meeting which followed the pivotal Brexit vote from a month earlier.
Now that the finalisation of UK's withdrawal from the EU seems almost done, some of the MPC's members appear to be fearing a further rise in overall trade uncertainty, despite the official stance of the BOE.
In the policy statement, the MPC had this to say in regards to the recent Brexit developments:
“The Committee’s new projections for activity and inflation are set out in the accompanying November Monetary Policy Report. They are now based on the assumption of an orderly transition to a deep free trade agreement between the United Kingdom and the European Union. […] In October, the UK and EU agreed a Withdrawal Agreement and Political Declaration as well as a flexible extension of Article 50. As a consequence, the perceived likelihood of a no-deal Brexit has fallen markedly, and the sterling exchange rate has appreciated.”
It is also stated that the MPC projects the GDP to grow in 2020, on the presumption that a no-deal divorce from the EU is averted on January 31s next year.
In contrast, inflationary pressures are expected to lessen by the end of 2019, which would result in subdued inflation throughout the first half of next year.
The annual inflation rate in the UK is currently at 1.7 per cent, and the MPC anticipates it to fall to around 1.2 per cent by Q1 of 2020.
UK Inflation Rate. Image source: TradingEconomics.com
Because of the projected deterioration of the price stability in the UK and the still relevant threat of a no-deal Brexit, two of the Committee’s nine members decided to vote in favour of a reduction of the interest rate presently.
Consequently, if the observed economic factors continue to weaken in the Kingdom by the 19th of December – the MPC’s next monetary policy meeting – it is likely for even more members to demand immediate reduction.
Owing to these concerns, the Pound was pressured during Thursday's trading session and lost footing against most major currencies.
The GBPUSD depreciated by 0.32 per cent yesterday and the pair is now trading way below the 5-day and 8-day Moving Averages on the daily chart, indicating the strong bearish sentiment.
The cable is now likely to test the significance of the support level at 1.27850.
GBPUSD 1D Chart. Image source: Trendsharks ©, created with TradingView.com
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