Today’s decision by the Bank of England’s Monetary Policy Committee (MPC) to keep interest rates unchanged at 0.25 percent, pushed the British pound to a 14-day high vs. the U.S. dollar. The MPC also reaffirmed its commitment to keep government bond purchasing program at £435 billion.
On the ongoing challenges regarding the Brexit situation, the BoE said monetary policy will be crafted and adjusted according to developments in “demand, potential supply, the exchange rate, and therefore inflation.“
However, UK’s central bank also mentioned in its statement that monetary policy would not dampen the economic fallout from Brexit:
“Monetary policy cannot prevent either the real adjustment that is necessary as the UK moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany it over the next few years.”While majority of MPC members voted to keep interest rate unchanged, MPC External Member Kristin Forbes, who said last month that an interest-rate-hike would not be harmful to the UK economy, was the only member to vote against keeping rates unchanged at 0.25 percent.
BoE’s MPC vote to keep rates low, boosted the pound to a 14-day high of 1.23771 by 1:15 p.m. EST on Thursday. Since Tuesday of this week, when the pound was trading at 2-month lows against the USD, the GBP/USD rate has climbed 2.18%:
The climb of the GBP/USD Forex pair this week was mainly driven by weakness in the dollar, which tumbled 1.15 percent on Wednesday after the U.S. Federal Reserve decided to raise interest rates to 1 percent.
BoE building photo by Captain Roger Fenton