BoE to remain cautious despite improving UK macro data
The Bank of England meets to decide on interest rate tomorrow, with the central bank widely tipped to remain cautious as Brexit uncertainty looms ahead of the United Kingdom’s upcoming departure from the European Union in nine-days time. Bank of England policymakers have effectively been buying time, as the potential impact of a hard-Brexit on the UK economy is still largely unknown.
The UK central bank is almost certain to leave rates unchanged at 0.75 percent on Thursday, with Bank of England Governor Mark Carney playing down the recent improvement in the macroeconomic data from the United Kingdom economy. Yesterday, the UK economy posted much stronger than expected employment data, while the UK unemployment rate dipped to its lowest level since 1975.
Data out yesterday showed the number of people employed in the UK rose by 220,000 in the three months to the end of January, which was almost double market expectations and the largest increase in UK employment since November 2015. UK unemployment also fell to 3.9 percent, which officially marked the United Kingdom’s lowest employment rate since 1975.
Recent UK retail sales data as also outpaced expectation, with a one percent increase during January 2019, while the all-important UK services PMI reading rose to 51.3 during February, which was a much-needed pick-up from the two-and-a-half-year low posted the month before. Furthermore, UK monthly GDP data jumped 0.5 percent last month, marking the largest increase since December 2016.
The Bank of England will be encouraged by the latest data, although they will likely need to see the outcome of Brexit and a sustained pick-up in UK inflation before hawkish undertones start coming from the MPC. UK political uncertainty is currently at historic levels, which will ultimately undermine any positive data points coming from the UK economy.
The recent decision by the House of Commons speaker John Bercow to block a third vote for British PM Theresa May’s ‘meaningful’ Brexit plan further underscores the fragility of her positions as the head of the UK Conservative and also her positions as the United Kingdom’s chief negotiator with European Union officials.
GBP/USD Daily Mountain Chart | Source: ActivTrader
The British pound has been holding firm in the face of uncertainty, with sterling receiving a strong boost on the back of hopes that the United Kingdom will be extended Article 50 next week. The GBP/USD pair’s trading ranges are largely the same heading into the Bank of England rate decision tomorrow. The GBP/USD pair has a strong bullish bias above the 1.3300 level, with the 1.3477 level the strongest resistance area above the 1.3388 level. To the downside, key support is found at the 1.3190 and 1.3100 levels, with extended support, at 1.2975.
Written by Nathan Batchelor, External Analyst
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