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Breaking - Bank of England Holds; Sterling Rises

Investing.com - The Bank of England said Thursday that it is keeping interest rates on hold at 0.75% after its final monetary policy meeting of the year.

In a repeat of last month’s vote, policymakers were split 7-2 in favor of no change, with Michael Saunders and Jonathan Haskel once again backing a rate cut.

Officials also voted unanimously to maintain the asset purchase scheme, which currently holds 435 billion pounds of government debt and 10 billion pounds of corporate bonds.

The bank said that it expects to see only marginal economic growth in the fourth quarter after gross domestic product increased by 0.3% in the three months to September, but added that the global economy is showing signs of stabilizing.

"Global growth has shown tentative signs of stabilising and global financial conditions remain supportive," the bank's statement said. "The partial de-escalation of the US-China trade war provides some additional support to the outlook relative to the November Report, although trade tensions remain elevated."

The bank stuck to its message that interest rates could move in either direction, saying it was too early to judge how material the effect of the breakthrough in U.S.-China trade talks and developments on Brexit would be on the U.K. economy.

The decision came after last week’s U.K. election results raised expectations for a smoother path to Brexit until Prime Minister Boris Johnson revived fears of a no-deal scenario.

Johnson has proposed plans to rule out any extension of the transition period beyond the end of 2020, meaning he will have just 11 months after the Jan. 31 Brexit deadline to reach a trade deal or risk exiting the European Union without trade arrangements in place.

Sterling was trading at $1.3125 immediately following the announcement from $1.3081 earlier, in the wake of two days of heavy losses that wiped out gains from the post-election relief rally - the ‘Boris Bounce’. The pound is still down more than 1.7% for the week and is on track for its largest weekly decline since late July.

Against the pound, the euro was trading at 0.8481 from 0.8515 immediately before the announcement.

The FTSE 100 gained 50 points on the decision to trade up 0.3% on the day, while the yield on the U.K. 10-year government bond rose three basis points to 0.82%.

Uncertainty over the potential economic fallout from Brexit prevented the BoE from following the lead of the Federal Reserve and raising interest rates in 2018.

It was then sidelined from a shift toward lower rates as other central banks, including the Fed and the European Central Bank, moved to counter the impact of the U.S.-China trade row on their economies.

Looking ahead to 2020, the BoE could cut interest rates, keep them on hold, or possibly even resume its long-delayed plan to raise them, depending on how Brexit plays out.

Investors are also waiting to see who will succeed BoE Governor Mark Carney, who is due to leave the central bank on Jan. 31. His replacement is expected to be announced soon.

--Reuters contributed to this report

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