Interest Rate Decision causes Sterling to Fall (Daniel Johnson)

Change in MPC vote calls a drop in GBP/EUR

Inflation is a major concern for the UK economy at present. It reached 2.9% recently and there had been rumoured the Bank of England would raise rates if inflation continued to rise. The latest data release showed a fall to 2.6% which many interpreted would mean a rate hike would be less likely.

This was confirmed today when the results of the Monetary Policy Commitee’s (MPC) vote was released. There was no change in rates which comes as no surprise, but the votes did come in with a different outcome to the last vote. A member of the MPC, Kristin Forbes recently left her a position and she was amoung the three members to vote in favour of a hike at the last Interest rate decision. She has been replaced by Silvan Tenreyo.

Tenreyo went against a hike and the vote came in at 6-2 in favour of keeping rates on hold. The pound suffered against the majority of major currencies as a result. Things are not looking good for the pound and I think there is potential for further weakness. In order for Sterling to make a significant gains we need a stable government in place. Fifteen conservative MPs recently stated a vote of no confidence in Theresa May. Political uncertainty historically weakens the currency in question and this is what we are witnessing at present. We also need a clear plan for Brexit as it looks as though the have your cake and eat it strategy is no longer viable. Compromises will have to be made on the freedom of movement of people in order for the UK to have access to free trade. If the stance for exit is made clear Sterling may have the opportunity to rally.

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