After plunging up to 15 percent in the wake of the Brexit vote to below 1.30 to the US dollar, sterling has been trading above that level in the last month as much of the recent economic data has been better than expected.
Advertisement
Last month the Bank chose to help Britain’s economy cope with the shock of the referendum decision to leave the European Union with an interest rate cut and stimulus package on a scale not seen since the depths of the global financial crisis.
Many commentators now believe the United Kingdom economy is likely to avoid recession following June’s Brexit vote, after data showed business activity rebounded from a reading of 47.4 in July, the lowest since April 2009, to 52.9 in August.
“Our measure of online United Kingdom inflation has now reached 1.8% year-on-year following the Brexit induced sterling collapse”.
The September meeting was the first for former Citi economist Michael Saunders who took the place of Martin Weale who opposed restarting QE in August, before he left the Bank.
The Bank of England has held interest rates at 0.25% but signalled another cut is still on the cards later this year despite a Brexit bounce in the economy.
That would be slightly less severe than the 0.1 percent crawl that the BoE had expected but half the pace of growth in the April-June period.
“As long as politicians continue to squabble about the timeframe and negotiating points for the UK’s exit from Europe, Carney will be keeping a very close eye on the situation”, Denis de Jong added. It kept the door open to a further rate cut-perhaps at its November 3 meeting to accompany the publication of the Inflation Report.
It stated a majority of members expect to support a further cut before the year’s end to the rate’s effective lower bound.
Official data Thursday showed retail sales in Britain fell 0.2 percent in August from July, with no real indication that the Brexit vote outcome was hurting spending.
The central bank now sees economic growth of 0.3 per cent this quarter.
Policymakers have likewise said there is room to extend all of their economy-boosting measures if needed, with potential to increase the initial £10 billion corporate-debt buying programme and the new scheme worth up to £100 billion to encourage banks to lend to households and businesses.
The Bank said while some economic news had been positive, data on global economic activity has “generally been in line with the Committee’s projections” in the August Inflation Report.
The Bank noted that it had overshot on inflation forecasts, and was expecting a smaller rise in the consumer prices index (CPI) over the second half of 2016.
Advertisement
It pointed to the outlook for the housing market being “less negative than expected” and consumer demand being stronger than expected.
