Bank of England keeps rates on hold ahead of U.K. election

Chart showing EUR  USD

Outgoing BoE governor Mark Carney, partaking in his penultimate rate decision, warned over the gloomy global outlook.

The British Pound to Canadian Dollar (GBP/CAD) exchange rate has been trending lower this week, but the pair is up on yesterday's levels as the Canadian Dollar is weakened by the latest market concerns over Canada's trade and economy.

The rate-setting committee has been reluctant to move interest rates for over a year given the huge uncertainty surrounding Brexit.

The Bank of England's Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. However, two external members of its monetary policy committee - Michael Saunders and Jonathan Haskel - voted for a quarter-point cut and that had the inevitable impact: the Pound weakened and the markets raised the probability of a rate cut next year to around 80% from some 55% previously. This will be further supported by easier United Kingdom fiscal policy and a modest recovery in global growth.

"Now it's become possible that the picture in the UK could change, with the recent UK-EU withdrawal agreement creating the prospects for a pick-up in UK growth", Carney said.

"I think it makes sense to keep their power dry until we see where we are, if and when Brexit decision actually takes place, because if it goes wrong, the Bank is going to need all the ammunition it can get", he said. That is, the agreement has not yet been approved by the British parliament in the early elections on 12 december, after scaring the investors off.

Both parties are promising to end years of austerity if they win and spend billions investing in infrastructure - funded by borrowing at record-low interest rates - to try to fuel growth.

"If downside risks emerge to United Kingdom economy, there may be a need to provide reinforcement but this is not pre-committing". GBP/CAD surged over two cents from 1.6751 to 1.6995.

"With the risk of a no-deal Brexit falling recently, we expect the uncertainty facing households and businesses to fall", the bank said. Banks and other financial services companies would face new hurdles selling to European customers, it said.

The European Commission also announced it was cutting Eurozone growth forecasts, though the bloc is still expected to avoid an overall recession.

On the other hand, the BoE lowered 2020 GDP growth forecast to 1.2% from 1.3%.

But over the next couple of years, the BoE still sees growth picking up from 1.4% this year to 2.0% in 2022. Articles appear on euronews.com for a limited time.

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