Published: Thu, November 07, 2019
Markets | By Otis Pena

Bank of England cuts growth forecasts on Boris Johnson's Brexit deal

Bank of England cuts growth forecasts on Boris Johnson's Brexit deal

Carney said the key message was that the BoE would cut policy rates if downside risks materialised.

If Mark Carney acknowledges a weaker global and domestic outlook in his speech, as predicted, we could see Sterling ease against the Euro on heightened fears for the struggling British economy.

Bank of England keeps its bank rate at 0.75%, however two members of the monetary policy committee voted for a 25 basis point cut in the rate.

The Pound (GBP) remained steady against the Euro (EUR) ahead of the Bank of England's (BoE) interest rate decision this afternoon, which is expected to hold at 0.75%. That's the first time there's been a split on the committee since June 2018.

GBP/CAD Exchange Rate Forecast: Central Bank Speculation and Major Canadian Data in Focus The Pound to Canadian Dollar exchange rate is now edging higher, but will the pair continue to recover towards the end of the week? If global growth fails to stabilise or if Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected recovery in UK GDP growth and inflation.

On top of Canadian trade jitters, the Canadian Dollar is being pressured by concerns that the Bank of Canada (BoC) could become even more dovish unless Canadian data shows more signs of recovery.

In the near-term though, the fact there has been a deal that could soon command support in Parliament has reduced fears of a no-deal Brexit and that should shore up growth, according to Carney.

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The main opposition Labour Party advocates keeping the United Kingdom within the European Union customs territory after Brexit, and also proposes offering voters the choice of staying in the European Union in a second referendum.

A hung parliament outcome at the December 12 election could also boost the possibility of a rate cut early next year, In that scenario UBS Wealth Management sees a 25 bps rate cut by May. The main opposition Labour Party wants to renegotiate that deal and then put it to the people in another referendum with an option for Britain to remain in the EU. Officials said such an outcome would dispel some of the uncertainty now depressing business investment and consumer spending.

The slowdown prompted two Bank of England rate-setters to seek a quarter-point cut, news of which saw the pound fall from $1.2855 to $1.2815. The two dissenters, Jonathan Haskel and Michael Saunders, said they favored a small cut to keep inflation and the economy on track amid a soft patch for growth and the labor market.

"With the risk of a no-deal Brexit falling recently, we expect the uncertainty facing households and businesses to fall", the bank said.

They added: "For the majority of members of the committee, the existing stance of monetary policy was appropriate at this meeting".

"In other words, it's not inconceivable that we see another sizeable change to the Bank's projections early next year, depending on who prevails at next month's election". The governor though did not rule out extending his time at the helm for a third time if asked by the government.

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