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Bank of England Leaves Policy Rate Unchanged, But 2 MPC Members Wanted A Cut

ftse 100
ftse 100

The Bank of England (BoE) held its policy rate steady at 0.75% as expected, and also left the Asset Purchase Facility unchanged at £435 billion. In a dovish twist however, two MPC members voted in favour of a rate cut, and this has put the British Pound on strong offer. Haskel and Saunders, both members of the Bank of England’s monetary policy committee, voted to have a 25bps rate cut.

As at the time of writing, the EURGBP was trading at 0.86355, 20 pips higher on the news and is still showing signs of registering further gains.

Bank of England’s Inflation and Growth Projections

The BoE has forecast the 2019UK GDP to come in at +1.4%. This is an improvement in the forecast figures it provided in August (+1.3%). The BoE is also projecting that the UK’s GDP in 2020 will drop from 1.3% it projected in August to 1.2%, while that of 2021 and 2022 would be at 1.8% and 2.0% respectively. The BoE has in effect radically revised the 2021 GDP figures from 2.3% it had projected in August.

The Bank of England also revised its inflation forecasts. It sees inflation at 1.52% in 2020; a drop from its previous projected figure of 1.90%. Inflation for 2021 and 2022 has also been projected to come in at 2.03% and 2.25%, which are downward revisions from the 2.23% and 2.37% it projected earlier.

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Technical Outlook of EURGBP

The unexpected dovish twist in the MPC voting pattern has once more highlighted the vulnerability of the British Pound to the economic uncertainties that currently exist as a result of Brexit.

The EURGBP was initially trading within the confines of an up channel, but the pair has spiked upwards and out of the channel, spurred on by the dovish vote.

The EURGBP has burst through the R2 daily pivot and briefly touched off the R3 pivot for the day at 0.86452, but has retreated from that level. It could make a renewed push for that level as the initial target. If it breaks it, the next upside target would be at the 0.86770 price level (October 24 high).

A pullback below 0.8631 may see price fall back to the upper channel border at 0.8619. However, the bias for the pair is now bullish, barring any new Brexit headlines. A price retreat may just be an opportunity to buy on dips.More content