No extra easing by the BoE at its next meeting – Rabobank

Jane Foley, Senior FX Strategist at Rabobank, ruled out further rate cuts by the BoE at its meeting next week.

Key Quotes

“Sterling’s 20% plunge since the June 23 referendum on EU membership has not been driven by economic data but by political uncertainty. Although Brexit will not be technically in place for two years after Article 50 of the Lisbon Treaty is signed, it can be argued that the process commenced in earnest at the start of this month when PM May indicated that the UK economy was on course for a ‘hard Brexit’.

“Without tariff free access to the single market and in the absence of passporting rights for certain financial institutions, investment spending is likely to be impacted even though the drop in sterling will help to allay some of fears about the potential impact of EU tariffs”.

“In the minutes of the September policy meeting, the BoE’s MPC stated that recent “data had remained consistent with the Committee’s judgement that business spending would slow more sharply than consumer spending in response to the uncertainty associated with the vote to leave the European Union.”

“Our expectation that the BoE is unlikely to cut the Bank rate again at next week’s MPC meeting may offer the pound some protection in the weeks ahead. However, in the absence of any back down by the government on its hard Brexit position, sterling is likely to remain a vulnerable currency. We maintain our forecast of GBP/USD1.18 and EUR/GBP0.92 by the middle of next year”.