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British pound dips back downward after Bank of England vote split

British pound dips back downward after Bank of England vote split

The United Kingdom’s pound fell on Thursday after an unexpectedly split decision by the Bank of England to maintain current interest rates at 0.75 percent [File: Leonhard Foeger/Reuters]

Sterling fell to a two-week low on Thursday after two Bank of England (BoE) officials unexpectedly voted to cut interest rates this month, and others said they would consider a cut if global and Brexit headwinds did not abate.

The BoE said that its nine-member Monetary Policy Committee voted 7-2 to keep its key rate at 0.75 percent, in sharp contrast to forecasts in a Reuters poll for a unanimous decision.


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So far, the central bank has resisted following the United States Federal Reserve and the European Central Bank in cutting rates in response to Brexit challenges and a global slowdown caused by a protracted US-China trade war.

Thursday’s news took markets by surprise, pushing sterling down against its major rivals.

The United Kingdom‘s currency fell to its lowest point in nearly two weeks – down as much as $1.2794. It was last down 0.26 percent on the day at $1.2827. After falling almost 0.4 percent against the euro following the BoE’s decision, the pound was flat against the euro at 86.14 pence.

London’s benchmark FTSE 100 stock index was last up 0.13 percent, in line with a weaker pound and as other European markets gained on signs of progress in US-China trade talks.

“We have had some sterling underperformance, but the moves so far are relatively contained,” said Jordan Rochester, an FX strategist at Nomura in London. “There have been a couple of times where dissenting BoE members get the markets excited but actually the politics or the data changes the narrative.”

Rochester said the big focus for currency traders was next month’s snap parliamentary election, with uncertainty on that front likely to weigh on the pound.

Increasingly, economists believe the BoE will cut interest rates at some point next year given a slowing economy and uncertainty over the UK’s planned exit from the European Union.

Expectations of a quarter-percentage-point rate cut have risen to 40 percent by March 2020 compared with 25 percent earlier, according to Refinitiv and CME data.

“The message from the BoE is pointing to the downside for sterling,” said Neil Jones, head of hedge fund currency sales at Mizuho Bank in London. “Surprising votes for rate cuts voice concern over domestic and global risks. Given how the UK is such an international economy, this is understandable.”

A hung parliament outcome at the December 12 election could also boost the possibility of a rate cut early next year, In that scenario, UBS Wealth Management sees a 25 basis point rate cut by May.

Source: Aljazeera


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