Higher rates to boost pound

Financial and commodity markets analytics

The Bank of England announced its latest interest rate decision yesterday with board members voting unanimously to keep rates on hold at 0.75 percent and the following statement left investors wondering will the next move in interest rates be up or down.

In the following monetary statement after the interest rate decision, the BOE cited a number of domestic factors as the reason to keep rates on hold and noted that any future moves will be closely connected to the ongoing Brexit negotiations and what may happen once a deal is made between the UK and EU.

"The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal, in particular: the new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond. The appropriate path of monetary policy will depend on the balance of these effects on demand, supply and the exchange rate. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction” the bank said.

One analyst believes that interest rates in the UK are definitely on the up but may come a little later than some had predicted earlier in the year and this should provide support for the British pound and even lead to some gains

"We no longer expect the increase in August but now judge it most likely that Bank rate will be raised 25bp to 1.00% in November," says Phillip Shaw, an economist with Investec in London. "As investors latch on to the prospect of policy tightening, we expect this to provide a degree of support for the Pound."


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