GBP EUR Forecast to Surge if Bank of England Takes Hawkish Stance

06 August, 2017, 01:37 | Author: Gladys Mathis
  • Office business tools with dollars and calculator on table

Hence, to reach its inflation target, the Bank uses Monetary Policy such as adjustment of interest rates in order to meet the target.

Currently, inflation is running at 2.6%, while wage growth is just above 2%, meaning that regular Brits are now bringing in less in wages than prices are growing, effectively lowering their real incomes.

Lombard Odier Investment Managers investment strategist Charles St-Arnaud said the BoE's ability to raise interest rates by the end of the year would continue to be hampered by the Brexit negotiations.

Mr Broadbent said the Brexit vote had caused inflation to march higher and there had to be a "trade off between stabilising inflation and keeping the economy going".

Carney today also warned that uncertainty was weighing on growth prospects, harming the investment which the Bank expects to make up for sagging consumer spending. Such a sharp rise reflected sterling's fall from 1.48 USA dollars to the pound on the night of the referendum vote past year to 1.31 US dollars now, having touched as low as 1.22 US dollars in between.

The BOE's latest forecasts for the economy are based on a smooth Brexit, though Carney said on Thursday that the assumption will be tested.

The bank's Monetary Policy Committee voted 6-2 in favour of leaving rates and QE unchanged.

"We expect the BoE to remain dovish as the impact of the weaker pound becomes fully reflected in inflation data over the course of the next 12 months, allowing it to naturally drift back in line with global averages".

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"It is very unlikely this signaling will culminate in formal policy action, particularly in the early stages of the Brexit process".

The decision comes a year after the Bank slashed rates to the new all-time low in the aftermath of the Brexit vote.

Looking ahead the GBP EUR exchange rate is likely to remain on the back foot for the remainder of this week's session as markets digest the BoE's decision to leave interest rates on hold again.

In all, the Bank of England is expected to keep the interest rates and its QE program unchanged for long, stated Nordea Bank.

If there are no major surprises from the votes or quarterly inflation report, Carney's press conference will decide which direction the pound will take.

This was followed by gross domestic product figures showing growth was limited to 0.3% in the second quarter in what the Office for National Statistics described as a "notable slowdown" for the economy. Officials are also due to discuss shrinking the central bank's holdings of more than $4 trillion in bonds at their next meeting in September.

The BOE said it expects the United Kingdom economy to expand 1.7% in 2017, a weaker pace than the 1.9% it forecast in May.

Significantly, he added that Bank was not excessively concerned about the level of British households' debt, as the ratio of consumer credit to incomes continued to be much lower than before the financial crisis.

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