The Bank of England announced its interest rate decision yesterday and, unsurprisingly, they were kept on hold this time around. What made for more interesting reading, were the minutes from the Monetary Policy Committee meeting and subsequent press conference. The MPC confirmed that it is concerned about Brexit and the ongoing trade war between the US and China, as well as the fact that the UK economy has weakened in recent months.
Interestingly, policymakers said that they could cut or raise interest rates after Brexit, depending on how the process of withdrawal goes. It is fair to say it has been anything but smooth so far, but as the deadline approaches, perhaps MPs will stop squabbling and actually agree on the best way forward. We certainly won’t be holding our breath though. The Bank added that business investment has been hurt by the continuing uncertainty surrounding Brexit.
Later, Governor Mark Carney said that the ‘fog of Brexit’ is creating tensions and said it would be remarkable if sterling’s current value reflected the final outcome of the Brexit negotiations. That is a clear hint that there will be wild swings, although in which direction simply cannot be known at present. One of the most startling things Carney said was that a no-deal Brexit could cause a recession in the UK.
Sterling had an extremely volatile day against the dollar yesterday, as it dropped to a two-week low following BoE’s comments that said Britain’s economy has been damaged by Brexit. However, it reversed those losses and did an about-turn after it was announced that the UK and EU had agreed to fresh talks. There was around a one-and-a-half cent swing between the GBPUSD highs and lows yesterday.
The Halifax house price index increased by 0.8% year-on-year in the three months to January 2019, which was some way below the 1.5% expected by the markets. Month-over-month, the figures were a cause for concern, with prices dropping by 2.9% when a more modest drop of 0.5% had been predicted. It will not surprise you to learn that Brexit uncertainty is one of the chief reasons for the drops, as nobody knows what impact it will have.