British Pound Declines After Bank of England Keeps Interest Rates at 0.25%

The British pound gave up all of yesterday’s gains against the greenback after the Bank of England released its Monetary Policy Summary report today. The pound settled at 1.2531, posting a decline of 1.02 percent:

Much like the FED in the United States, the BoE has been aiming to meet a 2% inflation target, but the Brexit vote over the summer has complicated the economic landscape, “The transition to new international trading arrangements, and the movements in the sterling real exchange rate that might accompany it, were long-term structural economic adjustments over which monetary policy had very little or no influence.,” states the BoE.

According to the report, growth of the British economy will be impacted due to the increase of import prices over the past year. This in turn has the potential to cause a reduction in incomes and a rise in CPI inflation.

The report also revealed how concerned the Bank of England is about ongoing knock-on effects of the depreciation of the pound, which has depreciated by 15.7% since June 24, 2016 - the day of the Brexit vote:

“Although there were relatively few signs of a slowdown in consumer spending so far, a slowdown was highly likely given the scale of the depreciation of sterling and the consequent effect that higher import prices would have on real income growth.”

Upon analysing the economic uncertainties regarding the ongoing Brexit negotiations between England and the EU, the Monetary Policy Committee unanimously voted to keep interest rates at 0.25%.

Additionally The Bank of England said it will maintain UK government bond purchases at £435 billion.

Currency notes image by Alan Light