The Bank of England´s MPC remained conservative leaving the Bank rate unchanged

While the decision of the Bank of England Monetary Policy Committee (MPC) to keep the Bank rate unchanged at 0.75% after August rate hike is fully in line with the market forecast, judging that the Brexit risks increased makes the Bank conservative in line with the market expectations as well as the English tradition.

Given the previous statements from the Bank of England officials on Sterling’s relative underperformance from the parliamentary hearing on August Inflation Report, there is no explicit mention of Sterling in September MPC policy statement. 

That is particularly true given the recent wave of optimism over the Brexit deal voiced by the European Union (EU) official including the EU chief Brexit negotiator Michel Barnier seeing the deal achievable in 6-8 weeks horizon and the EU’s pullback on hardship stance on the issue of the Irish border.

“The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal.  Since the Committee’s previous meeting, there have been indications, most prominently in financial markets, of greater uncertainty about future developments in the withdrawal process,” the Bank of England wrote in the policy statement on Thursday.

Domestically, the Bank of England sees the GDP growth rate slightly better than forecast with a 0.6% quarterly growth rate in the last three months to July. With the labor market slack being almost absorbed, the Bank of England expects slight re-emergence of excess demand in late 2019 and thereafter.

In terms of the international economic conditions, the MPC sees the global economy still growing at above-trend rates, although recent developments are likely to have increased downside risks to global growth, especially in the emerging markets. 

Finally, the Bank of England made no changes to the policy meaning the official stance of “limited and gradual” policy rate normalization is still in place with currency dovish implications.