The Bank of England kept rates on hold on Thursday despite pressure to cut rates to provide support for the economy through Brexit.
Despite speculation rates could be cut, it was widely expected that the Bank of England would keep rates on hold.
GBP/USD spiked nearly 100 pips in the immediate reaction before fading back down to around 1.3050.
The FTSE 100 fell in response to the rate decision, dipping beneath 7,400 for the first time in 2020.
The Monetary Policy Committee also voted to keep asset purchases steady.
In the release accompanying the rate decision, the Bank of England said “UK GDP growth slowed last year, reflecting weaker global growth and elevated Brexit uncertainties. Output is expected to have been flat in 2019 Q4. Growth in regular pay has fallen back to around 3½%, though unit labour costs have continued to grow at rates above those consistent with meeting the inflation target in the medium term.”
There had been speculation mounting that the Bank of England would preempt any economic slowdown induced by Brexit with a rate cut but have instead opted to survey the data for a little longer.
With rates already at 0.75%, the Bank of England doesn’t have much room for manoeuvre in case of a significant drop in economic activity.
“There is no need to do anything to interest rates right now. There is enough dynamic coming out of the real economy to get out of the stasis that we have had over the last three and a half years,” said Dr Kerstin Braun, President of Stenn Group.
“With momentum finally coming out of business, the best way for the government to support the turnaround is to go-ahead with large infrastructure projects that have been dangled before the voting public.
“We expect the Bank of England to hold rates for a while longer, whilst the UK adapts to post Brexit.”