Bank of England holds rates, claims Sterling could fall ‘sharply’ post Brexit

Matthew Ryan13/May/2016Currency Updates

The Bank of England sprung no surprises at its monthly monetary policy meeting on Thursday, with UK policymakers once again voting to keep interest rates unchanged at their record low 0.5% level.

All nine MPC members again voted to keep rates on hold, defying some expectations that one of the more dovish members of the committee could vote for an immediate rate cut. As expected, the central bank also revised its growth forecasts lower for both this year and next, to 2% and 2.3% respectively, reflecting weak global conditions and EU referendum uncertainty, which has provided a drag on the UK economy since the turn of the year.

It’s clear that next month’s EU referendum, and the threat of a Brexit, is undoubtedly the biggest worry for the BoE. The topic that dominated both the meeting minutes and Governor Carney’s press conference.

Carney painted a fairly grim picture of the consequences of a Brexit, claiming that we could expect a sharp fall in Sterling, rising unemployment, higher inflation and lower growth to the point of risking recession. The Bank also attributed around half of Sterling’s 9% depreciation since November to EU referendum jitters.

A lack of dissenters among the committee, however, caused an immediate bounce in Sterling, with the Pound ending the London session higher against both the Euro and the US Dollar.

Away from the UK, Eurozone industrial production figures massively undershot expectations, while the Norwegian Krone strengthened after Norway’s central bank left its interest rate unchanged. Norges Bank claimed it had not even considered a cut.

The Brazilian Real also ended the day as the worst performing currency in the world after the Senate voted to suspend President Dilma Rousseff.

Major currencies in detail:


The Pound rose by 0.3% against the US Dollar yesterday, buoyed by a lack rate dissenters in the Monetary Policy Committee.

Yesterday’s message from the Bank of England was unquestionably its firmest warning yet about the negative effects of a Brexit. The Bank of England clearly remains in no hurry to change monetary policy until the impact of the EU referendum can be assessed.

The minutes also echoed comments from Chancellor George Osborne, who yesterday conceded that the BoE and Treasury are planning contingency measures to prevent a leave vote leading to a financial crisis.

With no economic data to end the week in the UK, investors will focus their attention on a speech from notoriously hawkish MPC member Martin Weale at 13:30 UK time.


Weak industrial production data weighed on the Euro yesterday, which finished 0.2% lower against the US Dollar.

Industrial production figures in the Eurozone were particularly weak in March, highlighting the still-fragile state of the Euro-area economy. Output in the industrial sector fell by 0.8% in March for the second month in a row, dragging down production growth to just 0.2% on a year previous. Somewhat worryingly the decline was broad, with only energy production posting an increase.

The weak economic backdrop continues to ramp up pressure on the ECB. A poll from Reuters yesterday suggested that the central bank could cut its deposit rate to as low as -0.5%, from the current -0.4%.

Updated growth figures for the first quarter are expected to remain unrevised this morning, showing that the Eurozone economy grew by 0.6% in the first three months of the year.


The Dollar index rallied by 0.3% yesterday, buoyed by a weaker Yen following speculation that the Bank of Japan could expand stimulus measures next month.

Jobless claims in the US proved a negative surprised last week, increasing more than expected to a one year high of 294,000 in the third successive week of increases.

The disappointing run of jobless claims brings into question the strength of the US labour market following last Friday’s weak labour report. Claims had, as recently as a month ago, fallen to their lowest level in over 40 years.

Today’s retail sales report take on added importance as Fed members will be looking for insight into the strength of the US economy ahead of their meeting next month. Sales are forecast to have increased by 0.8% in April following two consecutive months of negative growth.


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Written by Matthew Ryan

Strategy Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.