BoE Rate Statement Supports the Pound

Market Reviews

The British pound remains strong despite weak manufacturing data. Earlier today, the pound was boosted by the news that a tentative deal is agreed between UK and the EU on all aspects of a future partnership on services. Still, EU chief Brexit negotiator Michel Barnier said that EU is “ready” to have “close regulatory dialogue” with the UK. However, the report regarding UK banks’ access to the single market was “Misleading press articles.”

The Bank of England decided to leave the key interest rate at 0.75%. It was expected, that concerns about the Brexit process would keep the Bank of England from tightening monetary policy at the November meeting. The central bank said that inflation will remain above the target level for most of the forecast period before it reaches 2% by the end of 2021. The Bank of England also said that the outlook for the economy “largely depends” on the conditions for a UK exit from the EU, especially from “new trade agreements, the smooth transition and the response of households, companies and financial markets”.

In the updated economic projections in the Inflation Report, BoE lowered 2019 Q4 four-quarter GDP forecasts from 1.8% to 1.7%. For 2020, four-quarter GDP forecast was kept unchanged at 1.7%. On CPI inflation, BoE lowered CPI forecast for 2019 Q4 to 2.1% from 2.2%. However, for 2020 Q4, inflation forecast was raised to 2.1% from 2.0%. Bank Rate forecasts for 2019 Q4 was raised from 0.9% to 1.0%. For 2020, Bank Rate forecasts was also raised from 1.1% to 1.2%.

The US dollar remains weak. Today’s economic data from US showed, that initial jobless claims dropped by 2k to 214k in the week ended October 27, slightly above expectation of 213k. Continuing claims dropped by 7k to 1.631m in the week ended October 20, the lowest since July 28, 1973. US non-farm productivity rose 2.2% in Q3, unit labor costs rose 1.2%.

Also released today, UK PMI manufacturing dropped to 51.1 in October, down from 53.8, missed expectation of 53.0. Swiss PMI manufacturing dropped to 57.4 in October, down from 59.7 and missed forecast of 58.5. Swiss CPI accelerated to 1.1% yoy in October, up from 1.0% yoy and matched expectations. Swiss SECO consumer confidence improved to -6 in October.

Earlier it was reported, that China Caixin PMI manufacturing rose 0.1 to 50.1 in October, matched expectations. Australia trade surplus widened to AUD 3.02B in September. Japan PMI manufacturing was finalized at 52.9 in October.