Pound US dollar exchange rate: GBP/USD sinks on Bank of England division

Andrew Cummings
November 7, 2019

Significantly, in the BoE's November Monetary Policy Report, policymakers also forecast that United Kingdom economic growth would pick up over the course of 2020 as Brexit related uncertainties began to dissipate, supported by looser fiscal policy, and assuming a gradual recovery in global growth as well as a reduction in Bank Rate.

Alarm over a darkening global climate prompted two of the Bank's nine Monetary Policy Committee members to vote for an immediate cut in interest rates, which were held unchanged at 0.75pc.

But the Bank predicted the impact of Brexit and a slowing global outlook means the United Kingdom economy is set to grow by one per cent less over the next three years compared to forecasts made in August.

Boris Johnson's Brexit deal means there could be a "pick-up in United Kingdom growth", Mark Carney said today as the Bank of England's economic forecasts struck a gloomy tone. As a effect, the perceived likelihood of a no-deal Brexit has fallen markedly and the sterling exchange rate has appreciated.

"Two members preferred a 25 basis point cut in bank rate at this meeting", the minutes read.

They also softened long-standing language on the medium-term need for limited and gradual rate hikes, saying they "might" rather than "would" be necessary. Britain's general election on December 12 has the potential to affect the outcome of Brexit, which is now scheduled for January 31 after another extension to the departure date.

"Some uncertainty is likely to persist, however, as the details of the United Kingdom and EU's eventual relationship are assumed to emerge only gradually over time and the smoothness of the transition to it remains to be determined".

JOB MARKET WORRIES Saunders and Haskel noted reduced job vacancies that suggested Britain's hitherto strong labour market was weakening as well as risks from the world economy and Brexit.

Peter Dixon, an economist at Commerzbank, said he did not expect the majority of the MPC to back a rate cut soon.

"As we think may be the case for other central banks, uncertainties and divisions may mean the ultimate outcome is to stay on hold", HSBC's Simon Wells and Chris Hare wrote. On the other hand, the BoE lowered 2020 GDP growth forecast to 1.2% from 1.3%.

But part of the growth downgrade reflected Johnson's Brexit plans. That slowdown reflects weaker global growth, driven by trade protectionism, and the domestic impact of Brexit-related uncertainties.

"We would look through temporary factors lowering inflation".

Overall, it said, the United Kingdom economy will grow by 1% less over the next three years than it thought at the time of its previous forecasts in August.

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