GBP EUR Drops as Bank of England Holds Rates Steady

GBP USD Slips Lower After Powell Secures Second Term as Fed Chair

The GBP EUR exchange rate was lower -0.40% after the Bank of England declined to raise interest rates, crushing traders in the process. I said in previous articles that the BoE may use the market repricing as a soft hike and that’s exactly what they did. The Federal Reserve also took a dovish path last night so that was another warning sign.

The GBP to EUR was trading at 1.1740 on Thursday’s announcement.

Bank of England defies market with interest rate flip-flop

The Bank of England has shocked many traders with a decision not to raise its key interest rate.

The central bank voted 7-2 to keep interest rates stuck at 0.1% despite markets fully pricing in a move higher to 0.25% on recent BoE comments.

The bank also declined to adjust its bond buying program despite a forecast of 5% inflation and a 1% cut to GDP. A statement said: “The Monetary Policy Committee voted by a majority of 7-2 to keep interest rates at 0.1% and by a majority of 6-3 to maintain the amount of quantitative easing at £895bn.”

The BoE added:

“the Committee judges that, provided the incoming data, particularly on the labor market, are broadly in line with the central projections in the November Monetary Policy Report, it will be necessary over coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2% target. There was value in waiting for additional information on near-term developments in the labor market.”

Only two policymakers, Dave Ramsden and Michael Saunders, voted for a rate hike. They said that inflation is likely to remain above target for the next few years unless they act. Acting now might reduce the need for a sharper tightening later, they said. The same officials, alongside Catherine Mann, also voted to reduce the BOE’s target for government bond purchases by 20 billion pounds to 855 billion pounds.

UK construction faring better than many sectors in supply chain

Output growth in the UK construction industry was higher in October despite the ongoing supply chain crisis.

According to IHS Markit and CIPS, the recovery continued from September’s eight-month low, with house building back in the top spot for best-performing sector.

The construction PMI index rose to 54.6, up from 52.6 in September, but new orders remained unchanged from an eight-month low.

Residential and commercial construction expanded at a quicker pace than in September, with survey respondents saying the lighter pandemic restrictions were the driver. Meanwhile, civil engineering activity was only marginally higher. IHS highlighted that there were still shortages of staff and materials during the month.

Over half of the recent survey respondents reported longer delivery times for the month, while only 2% noted an improvement. Delays were linked to shortages in HGV drivers and blockages in international shipping.

However, the index saw even longer wait times of 63% for supplier deliveries in September and had seen a high of 77% in June.