The Bank of England held their interest rate decision on September 19th, with all votes on holding the cash rate at 0.75% unchanged. BoE reaffirmed its pledge to gradual and limited rate rises under the assumption of a smooth Brexit and some recovery in global growth. Meanwhile, the MPC voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves at £435 billion. For November’s decision meeting, with so much resting on the outcome of general election and Brexit, the MPC is highly unlikely to make a big change on the policy, therefore, the market is widely expecting the monetary policy to remain on hold.
Bank of England Interest Rate (%)
BoE Interest Rate Announcement History
Date Previous Consensus Actual
7 Nov 2019 0.75% 0.75%
19 Sep 2019 0.75% 0.75% 0.75%
1 Aug 2019 0.75% 0.75% 0.75%
20 June 2019 0.75% 0.75% 0.75%
02 May 2019 0.75% 0.75% 0.75%
21 Mar 2019 0.75% 0.75% 0.75%
07 Feb 2019 0.75% 0.75% 0.75%
20 Dec 2018 0.75% 0.75% 0.75%
01 Nov 2018 0.75% 0.75% 0.75%
Opportunities can be found in the statement
“CPI inflation has been close to the MPC’s target throughout 2019 so far and was 2.0% in June. Inflation is expected to fall in the near term, reflecting lower energy prices. Core inflation, which excludes the effects of energy, food, alcohol and tobacco, was 1.8% in June, and is expected to be close to that rate over much of 2019 H2.
Conditioned on a smooth withdrawal of the UK from the EU, Brexit-related uncertainties are assumed to subside over the forecast period. Together with a boost from looser monetary conditions, the decline in uncertainties leads to a recovery in demand growth to robust rates. As a result, excess demand and domestic inflationary pressures build. CPI inflation picks up to materially above the MPC’s 2% target by the end of the forecast period.” Referring to BoE’s Inflation Report - August 2019.
The annual inflation rate was at 1.7% in September, unchanged from August and slightly below market expectations of 1.8%. It remained the lowest inflation level since December 2016. The inflation is below the 2% inflation target, however, the BoE still stuck to its hawkish bias and looked to raise rates when needed.
UK Inflation Rate (%)
“UK GDP growth has been more volatile than usual over the first half of 2019, largely due to developments relating to Brexit. For example, GDP growth of 0.5% in 2019 Q1 was boosted by companies building up stocks in order to mitigate the effects of a possible disruptive EU exit on 29 March. For the same reason, some firms in the car industry brought forward their usual summer shutdowns to April, and the resulting decline in production weighed on output in Q2. The unwind of the effect from stockbuilding will also have weighed on GDP growth in that quarter. UK GDP is expected to have been flat in Q2.” Referring to BoE’s Inflation Report - August 2019.
The GDP (YoY) in the UK expanded 1.3% as expected in the 2rd quarter of 2019, slightly above a preliminary estimate of 1.2% but substantially below a revised 2.1% growth in the previous period. Like mentioned above, uncertainties remain from external global economies. Brexit-related incidents have made UK economic data unusually volatile since this year, therefore, the BoE marginally downgraded its forecast for 3rd quarter growth – from 0.3% to 0.2%.
UK GDP Annual Growth Rate (%)
The latest data suggest that the labour market remains tight, although employment growth has softened. As a result, wage growth remains stronger than in recent years. The unemployment rate fell slightly in the three months to May, to 3.8%, a little lower than expected in the May Report. That remains below the MPC’s assessment of the equilibrium rate of unemployment — of 4¼% — that would be consistent with inflation at the target in the medium term. Employment growth has softened in 2019. It was 0.1% in the three months to May, down from 0.5% in the three months to February. The number of employees fell in the latest data, while self-employment rose sharply. The slowdown in overall employment growth may be a consequence of companies finding it harder to recruit, given a smaller pool of available labour. It may also reflect an easing in the demand for labour as underlying GDP growth has slowed.” Referring to BoE’s Inflation Report - August 2019.
The unemployment rate grew to 3.9% in August from 3.8% in the previous period. Wages have rising faster than the inflation figures, but average weekly earnings (including bonuses) only rose by an annual 3.8%, following a downwardly revised 3.9% gain in the previous period and missing market expectations of a 4% rise.
UK Unemployment Rate (%)
The British pound rallied against the greenback after breaking out the 1.2582 resistance level. However the price fails to continue pushing up in the past 2 weeks, sellers concentrate on the lower highs. In the day timeframe, MACD and RSI are regaining bearish momentum. Even though the GBPUSD pair is in an upward trend, focus on 1.3013 key barrier, the pair will continues pump up if it breach the barrier. While if it fall back to 1.2582-1.2708 support area, the price is likely to rebound and look to retest 1.3013 resistance.
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