Mark Carney, the BoE’s Governor, added a note of caution following the decision, commenting: “To be clear these are still early days and it’s less of a case of so far so good than so far good enough. Although the global economy looks to be recovering, caution is warranted. Evidence of a pick-up in growth is not yet widespread.”
Sterling has benefited from the BoE’s decision today, with markets previously betting on odds of 52 percent in favour of a rate cut.
However, after business surveys picked up following December’s general election, the UK’s economic outlook has provided some room for hope as it officially leaves the European Union (EU).
The central bank’s forecast also assumed an orderly new free-trade agreement with the EU, a prospect which has buoyed confidence in the British economy for the near-term.
Meanwhile, the euro struggled against the pound despite January’s Germany’s flash inflation report, which rose to 1.6 percent year-on-year, narrowing the gap on the European Central Bank’s (ECB) target of 2 percent.
However, as the ECB is not expected to divert its stimulus policy due to Germany’s increasingly problematic manufacturing sector, this has provided little support for the single currency today.
Today also saw the release of the Eurozone’s sentiment indicators, with January’s industrial confidence beating forecasts and rising from -9.3 to -7.3, while general economic sentiment rose to 102.8.
Bert Colijn, a Senior Economist for the Eurozone at ING, warned: “One has to be cautious in interpreting these numbers though as uncertainty around the impact of the coronavirus on the global economy is mounting.”
“That has not been factored into these results just yet, meaning that the revival of optimism could be short-lived.”
Looking ahead, expect to see a great deal of volatility in the pound to euro exchange rate tomorrow as the UK officially leaves the EU at 11pm.
Any further indications that the UK could face an uncertain economic future with the EU, however, would prove pound-negative.