The Bank of England has offered the pound short-term stability, according to economist at Julius Baer David A. Meier, though the bank is “not buying into policy tightening anytime soon”.
Mr Meier noted that once the effects of Brexit begin to be known, foreign-direct investments will expose the UK’s large current account deficit.”
The Bank of England’s focus is expected to be on limiting the economic downside, “hence a renewed bias towards policy easing, than burdening the economy because of a moderate inflation overshoot.”
In keeping the base rate unchanged at 0.25 percent, the Bank of England “retained its neural bias” as the level of the asset purchase facility is at £435 billion, Mr Meier said. He added that the additional purchases to the stock of gilts announced in August 2016 “were a reaction to the Brexit vote and have nearly been completed.”
Mr Meier believes the Bank of England is awaiting the political separation process to begin with Theresa May invoking Article 50, expected soon after the 25 March EU summit in Rome.
He added that economic activity is “looking robust in the current quarter”, and “recent signals of Brexit related headwinds in leading indicators and other data, such as retail sales", have been noted.
“Neverless, the BoE sounded a tad more hawkish, particularly one voting member opting for a rate hike and other members sounding more hawkish facing the rise of inflation. This could be an indication that the BoE has now less appetite to allow for inflation overshoot later this year,” Mr Meier concluded.