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The Bank of England met expectations on monetary policy by leaving the current rate of interest unchanged for the time being, reaching the decision by a unanimous vote.

Key Takeaways

• Asset purchases remained steady at $493 billion.
• UK economic growth slowed in 2018 and this cool down has extended into 2019 as well, likely influencing the decision.
• The economic outlook for the UK hinges on the nature of the nation’s withdrawal from the EU.
• UK GDP is 1.5% below June 2016 projections.

The global economy has continued to slow in recent months, as has that of the UK specifically, with a softening trend making itself felt throughout many regions and industries.

The Committee estimates Q4 GDP is to recover in late 2019 with Q4 growth rising to 2% by the end of the forecast period. The Committee also estimates that in order to meet 2% inflation targets, an ongoing tightening of monetary policy implemented at a gradual pace would be appropriate throughout this period if the economy continues to meet inflation report projections.

The monetary response to Brexit is still extremely uncertain, regardless of the nature of the exit, and could go either way, although the Central Bank Governor Mark Carney has stated previously that a no-deal Brexit would be the worst-case scenario for the British economy, adding today that it would increase the risk of a UK recession but was, relatively speaking, a low-risk outcome.

Carney appeared today in a press conference to answer questions regarding Brexit and the UK economy.

The "fog of Brexit" is creating tensions and Britain's economy isn't ready for a no-deal split, Mark Carney says https://t.co/3CCU0yxQuf pic.twitter.com/yqvZZ37qQN

— Bloomberg Economics (@economics) February 7, 2019

Expert Outlook

Carney stated in a press conference today that household spending is an upside risk to forecasts, citing the “historical resilience” of the UK consumer along with rising wage, all of which may combine to positively influence the near-future economic outcome.

He went on to add that it would be “remarkable” and highly unlikely to see a result in which the value of the sterling and other asset prices held firm following the final outcome of Brexit negotiations, implying wild fluctuations in value.

Carney pointed out that the UK GDP is 1.5% below June 2016 projections outlined by the central bank. He stressed that the outcome of Brexit is impossible to predict, and that there are almost as many potential outcomes today as there were on the morning of the EU referendum.

The UK Central Bank surveyed 200 companies and found that 50% of companies were not ready for a no-deal Brexit, and that half were ready – but had not necessarily made contingency plans.

“Of those, around a quarter were not making contingency plans — either because they did not think that they would be affected, or because they were waiting for more clarity about the outcome of a ‘no deal, no transition’ Brexit. The bulk of the remainder had started implementing plans that had been agreed or were being developed.”

Market Reaction

Spot gold is down slightly after a recent correction and last traded at $1,308.02/oz, down 0.11% with a tight range between $1,310.76/oz and $1,302.71/oz. The ultimate outcome of Brexit is not unlikely to impact the value of the precious metal along with any other commodities, assets, and currencies. As BoE Governor Carney pointed out, the nature of the impact of Brexit on the world economy is as of yet unclear, but as the fifth-largest economy in the world, its health will impact many other regions.

Gold will potentially be impacted by today’s initial jobless claims report due at 8:30 EST.