All roads led to the Bank of England (BoE) Monetary Policy Committee’s (MPC) interest rate vote on Thursday for the pound (GBP). The journey there was dominated by concerns that a faltering UK economy would force the BoE to cut the cost of borrowing.
Having dipped in value against both the euro (EUR) and US dollar (USD) at the start of the week, the GBP held relatively steady in the run-up to the big day. A scattering of upbeat data helped to maintain this trend, including a surge in annual house price growth – which hit a 14-month high in January – and a sharp improvement in sentiment in the UK retail and wholesale distribution sector.
Concerns over the health of the UK economy were laid to rest for the time being when the BoE announced that it had voted to hold interest rates steady at 0.75%, amid signs of a pickup in economic conditions. This was reflected in the value of the GBP, which immediately leapt in value against other major currencies like the EUR and USD. However, the Bank dealt the government a blow on the eve of Britain’s formal departure from the EU, by reducing its growth forecasts for the next three years.
After more than three and a half years of what Prime Minister Boris Johnson described as “dither and delay” the UK was braced to leave the EU late on Friday. While this doesn’t signal the end of the Brexit process – with a trade deal still to be agreed – in the short-term it could trigger an element of certainty that supports the GBP. But this is a step into the unknown for the currency, meaning it’s anyone’s guess how it will perform in the coming days.
As the UK gets used to its newfound independence, investors in the GBP will also be digesting the Markit Manufacturing PMI on Monday and the Markit Services PMI on Wednesday.
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