BoE heightens Brexit concern but policy outlook remains uncertain – MUFG

By FXStreet Lee Hardman, Currency Analyst at MUFG, notes that the pound staged a knee jerk rally yesterday following the BoE’s latest monetary policy update although initial gains proved short-lived.

Key Quotes

“As we had expected, the BoE chose not offer a strong signal over the outlook for monetary policy just reiterating that it remains likely that the next move in rates will be higher assuming that the UK votes to remain within the EU. The BoE is clearly in a very difficult position in the near-term as the upcoming EU referendum result will materially alter the outlook for monetary policy. As a result it makes sense for the BoE to keep policy firmly on hold until the referendum has taken place.

The updated Quarterly Inflation Report contained some modest downward revisions to growth and inflation forecasts but not sufficient to material alter the outlook for monetary policy. There had been some speculation that more dovish MPC members would vote for a rate cut yesterday which did not materialise and was partly responsible for the knee jerk pound rally.

The BoE has also received some criticism from the “Leave” campaign for stating that the UK economy is likely to slow materially which could possibly …read more

Source:: FX Street