BoE Interest Rate Decision (December 2018)


Posted on: 2018-12-20 (Day) By BCR Market Event


 

Is It All About Brexit?

The Bank of England held their interest rate decision on November 1st, with the nine BoE policy makers decided to hold the cash rate at 0.75% unchanged. For today’s decision meeting, the market is widely expecting the monetary policy to remain on hold at the meeting with the Inflation Report set to highlight Brexit uncertainties.

(UK Interest Rate %)

 

 

BoE Interest Rate Announcement History

Date                                      Previous              Consensus          Actual

20 Dec 2018                        0.75%                   0.75%

01 Nov 2018                       0.75%                   0.75%                   0.75%                   

13 Sep 2018                        0.75%                   0.75%                  0.75%     

02 Aug 2018                       0.5%                     0.75%                   0.75%

21 Jun 2018                        0.5%                     0.5%                     0.5%

10 May 2018                      0.5%                     0.5%                     0.5%

22 Mar 2018                      0.5%                     0.5%                     0.5%

08 Feb 2018                       0.5%                     0.5%                     0.5%

14 Dec 2017                       0.5%                    0.5%                     0.5%

02 Nov 2017                      0.25%                  0.5%                     0.5%     

 

 

Opportunities can be found in the statement

 

Inflation Rate

“The Committee judges that, were the economy to continue to develop broadly in line with the November Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2% target at a conventional horizon. Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.” Referring to BoE’s Inflation Report.

The annual inflation rate is showing a reading of 2.3% in November which refreshes the yearly low, in line with market expectations. However, the inflation rate meets the MPC’s target of 2%. Therefore, BoE has no reason to cut the interest rate any lower.

(UK Inflation Rate %)

 

GDP

 “The MPC projects four-quarter GDP growth to remain around 1¾%. That projection is similar to the August forecast. Within demand, consumption growth is projected to be modest relative to historical rates, but net trade and business investment support growth, conditioned on the assumption of a smooth withdrawal from the EU and an accompanying decline in uncertainty.” Referring to BoE’s Inflation Report.

The GDP (YoY) in the UK expanded 1.5% as expected in the Q3 of 2018, recovered from 1.2% in the prior period. It was the strongest pace of expansion since the third quarter of 2017. Uncertainties remain from external global economies. In response to the process of Brexit, the economic outlook of households, businesses and financial markets will be influenced significantly.

(UK GDP Annual Growth Rate %)

 

Jobs Report

“The labour market remains tight, with the employment rate and vacancies around record highs, and the unemployment rate at its lowest since the mid-1970s. Regular pay growth has been stronger than expected, rising to over 3%.” Referring to BoE’s Inflation Report.

The unemployment rate stood at 41% at market expectation in October 2018, remaining close to it’s the lowest reading since 1975. In the jobs report, wages have finally started rising faster than the inflation figures. Most importantly, wage growth accelerated to 3.3%. Even though the labour market remains tight, the sterling is still unable to get away from the pain of Brexit.

(UK Unemployment Rate %)

 

Technical View

Last week, the sterling fell to a 19-month low against the greenback. Brexit causes the sterling became the worst performing major currency. In the daily timeframe, MACD continues gaining bearish momentum and RSI is remaining below the neutral axis. The MA system is back to the bearish stance after technical correction. From the chart, the price reopened the gate for the bearish trend to shows the potential weakness in the short run. Focus on 1.2476 key support level for the movement in the upcoming days.

(GBPUSD Daily Chart)