What to Expect From the Bank of England Monetary Policy Meeting

Source: Forex News

The Bank of England (BOE) will
conclude its two-day meeting today. The bank is expected to leave interest
rates unchanged at the current level of 0.75%. Because the rate decision has
already been priced by the market, investors will be watching closely at the
statement of the bank. In the previous rates decision, the officials said that
they were expecting to raise interest rates if the country had a smooth exit
from the European Union.

Things have changed since the
previous meeting. The country now has a new prime minister in Boris Johnson,
who has been inclined on leaving the European Union on October 31st
with or without a deal. In recent days, the government has been ramping up
preparations on exiting the EU. Further, Boris Johnson has reiterated to the EU
that while he wants to leave the region with a deal on trade, he will not seek
further extensions.

The decision to leave the EU
without a deal will not be a light one. Most analysis show that the country
will see a significant downturn if it does exit without a deal. According to
the Bank of England, the country’s output could be slashed by more than 8%. The
International Monetary Fund (IMF) has said that the country will lose 3.5% of
its GDP if it exits without a deal. World Bank has also warned that a no-deal
Brexit would lead to a GBP 30 billion hit on the economy.

Companies like Airbus and Jaguar
Land Rover has signaled that they will leave the country if there is no deal.
Dyson, a leading company owned by a prominent Brexiteer was among the first
ones to leave the country. It’s headquarter is now in Singapore.

Prominent Brexiteers believe that
the country will do just fine in case of a no-deal Brexit. They believe that
the country will continue doing business with the European Union based on the
rules of the World Trade Organization (WTO). However, even with such rules,
there will be major impacts on how the UK trades with the European Union. For example,
there will be major delays at the North Ireland border. Today, trucks take less
than 30 minutes to cross. Without a deal, the entire process can take more than
three days.

In recent days, sterling has been
on a freefall as shown below. The fall accelerated yesterday following the FOMC
decision. While a weaker sterling may favor the UK, it might not be very
helpful when there is little trade. A Bloomberg
opinion
piece said that:

There’s a dangerous and
deceptive optimism at work here. Beyond the usual dismissal of any criticism of
Brexit as “Project Fear,” there’s clearly a belief among some that threatening
no deal is kind of a free hit: It can depreciate the pound, boost British
exports and heap pressure on Brussels in one swoop. This is playing with fire.

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