Fundamental Comment

Pound retains gains after BOE meeting

Pound retains gains after BOE meeting

The British pound was able to maintain the gains it recorded against the dollar, after hitting the highest level since May 2018, after the Bank of England meeting, which witnessed no change in the bank's monetary policy.

The BOE decided to fix interest rates at levels of 0.10%, with the consensus of the nine committee members. The central bank also kept the asset purchase program unchanged at a value of 895 billion pounds.

The British pound against the dollar saw a slight decline after the BOE meeting, trading at 1.3598, after hitting the highest level since May 2018 at 1.3622, while it had opened trading today at 1.3495.

The BOE indicated that the Corona crisis had caused a strong negative impact on household sector spending rates worse than expected in August, so that the bank expects a decline in GDP during the fourth quarter, provided that the economy begins to recover at the beginning of next year, especially with the end of the closure restrictions.

It is expected that the closure measures undertaken by the British government will negatively affect the growth rates during the first quarter of next year, but the financial support measures may help the growth to reach the bank’s expectations of 1% on annual basis.

Unemployment rates are likely to increase during the coming period, especially as expectations indicate a further deterioration in employment rates, with the possibility of an increase in the unemployment rate by 4.9% during the third quarter of the year.

Regarding inflation, rates will rise to the bank’s goal by the next quarter, especially with the approaching reduction of value-added tax during this period. 

Data released yesterday showed that the consumer price index fell to 0.3% in November after recording a 0.7% rise in October due to the impact of the pandemic on the economy.

It is worth noting that the bank’s expectations are based on Britain’s reaching a trade agreement with the European Union, a matter that continues to affect the markets. 

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