In a unanimous vote, the BoE’s Monetary Policy Committee voted to keep its policy unchanged, leaving interest rates on hold at 0.75 percent and citing a continued lack of clarity over Brexit for the decision. In its forward guidance, the bank explained the way potential Brexit outcomes might influence future policies, suggesting a managed withdrawal could result in rate hikes, while a no-deal would negatively affect the pound, leading to either a rate cut or hike depending on the economic impact.
However, BoE also warned that any further delay in the UK leaving the EU would lead to persisting uncertainty which would likely hurt growth.
On a more positive note, the BoE suggested the UK is likely to avoid a recession this year, despite a pound beleaguered by Brexit headwinds.
The BoE’s statement read: “Brexit-related developments are making UK economic data more volatile, with GDP falling by 0.2 percent in 2019 Q2 and now expected to rise by 0.2 percent in Q3…
“Growth has slowed, but remains slightly positive, and a degree of excess supply appears to have opened up within companies.”
Meanwhile, the euro found support in hopes for fresh fiscal stimulus in the Eurozone.
As the European Central Bank (ECB) unveiled easing measures last week it also called on EU leaders to support its efforts to bolster growth by increasing their government spending.
Signs that this appeal has borne fruit are becoming apparent, with France reportedly discussing the possibility of fiscal stimulus and the Netherlands preparing a draft budget for 2020 focusing on investment and tax cuts.
The UK Supreme Court’s verdict on the legality of Boris Johnson’s proroguing of parliament is due to come today.
Should judges rule against the government the pound could accelerate on renewed hopes that parliament will reconvene and an October no-deal might be averted.
Meanwhile, for EUR investors the focus will be on the Eurozone’s latest consumer confidence index where another deterioration in household sentiment in September could punish the single currency.