The pound fell sharply this afternoon as the Bank of England came closer to signalling an interest rate cut.
The Bank’s Monetary Policy Committee voted in favour of holding rates for the 15th month in a row, but traders were surprised as two members voted for an immediate rate cut.
Michael Saunders and Jonathan Haskel both opted to slash interest rates to 0.5 per cent as governor Mark Carney warned Boris Johnson’s Brexit deal and global trade wars will hurt UK growth.
“This leaves the door open for a cut to come soon, signals the direction of travel and was the first split since the summer of 2018,” Markets.com’s chief market analyst, Neil Wilson, said.
“If you can’t beat ‘em, join ‘em,” he added. “The Bank of England seems to have finally accepted that the world is in an easing cycle and it can’t fight this tide. We can safely say the hawkish bias has gone.”
Sterling fell as low as $1.281 against the dollar, and was down 0.24 per cent against the USD at $1.282 at 12.42pm.
The Bank also set out its prediction that the UK economy will grow at a lower rate than it had previously forecast: by 1.8 per cent in 2021 and two per cent in 2022.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Despite these new forecasts, our view remains that the next move in interest rates will be up, though not until the second half of 2020.
“Over the last year, the Committee consistency has placed too much weight on business surveys pointing to a near-term slowdown in the economy. In addition, its forecast for GDP growth of just 1.25 per cent in 2020 looks too weak, given that fiscal policy will be stimulatory next year, regardless of which party wins the election.”
More to follow.