BoE and Brexit

GBPEUR has been range-bound this week €1.12 to €1.13 following Thurday’s sudden drop into the 1.10s.

This morning UK inflation data briefly boosted the £. The reading of 3% was expected, reaching the highest level in 5 ½ years and is at the upper bound of the BoE’s threshold target of 2% plus or minus 1%.

If inflation rises above 3% the Governor of the BoE, Mark Carney, who chairs the 9 strong Monetary Policy Committee (MPC) will need to write an open letter to the Chancellor explaining why inflation is elevated, offer the committee’s proposed remidy and detail the length of time they expect inflatio rates to overshoot their target.

Coincidently MPC members spoke shortly afterwards in pariliament and although many bank analysits are prepared for a November interest rate hike it’s clear we remain vulnerable to any economic slowdown related to Brexit or to any poltical deadlock in negotiations. We could therefore see the recent supporter for the pound fade.

Mark Carney, Governor:  

“I think it’s more likely than not that I will be writing on behalf of the MPC a letter to the chancellor. We expect that inflation will peak in and around the October figure, October-November figures, peaking potentially above the 3 percent level.”

Silvana Tenreyro, external member of MPC, said she’ll only vote for a rate rise in the coming months if economic indicators are in line with current expectations, otherwise she’ll wait.

David Ramsden, Deputy Governor

  • On Interest Rates

“I voted to maintain bank rate at a quarter percent. A majority of MPC members saw a case for removing some monetary stimulus in the coming months, I wasn’t in that majority. I mention that because I think that’s relevent to my assessment.

  • On BoE Signals

“All nine of us in September thought that the markets at that point were actually underpricing the number of rate rises over the forecast horizon, we sent that signal clearly.