BOE Likely to Leave Interest Rates Unchanged Despite UK’s Gloomy Economic Outlook

The Bank of England (BOE) looks set to leave interest rates unchanged at 0.75% this week. On Thursday, the BOE is expected to lower its growth and inflation forecast amid Brexit uncertainty.
Lukman Otunuga

On October 28, the EU agreed to give the UK a Brexit extension until January 31, 2020. Prime Minister Boris Johnson called for General Elections on December 12, hoping that the Conservative Party will win majority of the seats in Parliament. If this scenario materializes, it will enable PM Johnson to break the political deadlock on pushing through his Brexit Withdrawal Agreement. The uncertainty regarding Brexit has always been a big issue for the Monetary Policy Committee in terms of growth and inflation forecasts. It’s an uphill task for BOE Governor Mark Carney who is due to leave his post as Governor by January 31 to come up with a decisive policy.

There is continuous pressure on BOE for a rate cut next year. One policymaker from the Monetary Policy Committee, Michael Saunders expressed his support for a rate cute and warned that lower growth is a big concern for the UK’s economy. Keeping all in view, BOE is likely to forecast weak economic growth for 2020 and that will support the argument for a rate cut earlier next year.

GBP enjoyed a bullish October as far as price action is concerned. Investors reacted positively to short-term news. But the GBPUSD rally stalled before reaching 1.30000 due to political and economic concerns. Currently, the price is in wait and see mode before making a decisive move.

On the technical side, GBPUSD on the 4-Hour timeframe has been in an uptrend since October 10. The pair jumped from 1.22000 to reach the highest level of the period under study at 1.29753 on October 31. GBPUSD failed to close above the psychological level of 1.30000, which inspired sellers to take shorts positions. As of writing, the price is hovering around 1.28990 with negative MACD and Momentum below 100 level. Although, price is trading slightly above the 50 periods Simple Moving Average but RSI is still below 50. Bulls need to push the price above 1.30000 level, if price remains below the psychological level of 1.30000, then it will encourage the price to maintain its range towards trending lower.

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