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The Bank of England (BoE) left policy largely unchanged today, as had been fully expected. Sterling did not register any reaction to the December MPC decision as investor attention firmly lie elsewhere. With hopes for a deal back on the rise, Brexit concerns remain the key driver for now, economists at TD Securities report.

Key quotes

“The BoE left policy essentially unchanged. There was no mention in the Minutes of negative rates, and we look for that review to come in the February MPR.”

“The BoE intends to maintain the recent pace of purchases for now, with the flexibility to slow the pace of purchases later, and they’re expected to run until around the end of 2021. Our view is that the recovery will be disappointing, leading the BoE to maintain the pace of purchases for longer, before announcing another £90B of QE at the August meeting. […] We’ll likely see 2021 GDP growth downgraded in the February MPR, but 2022 GDP growth upgraded.” 

“From a currency market perspective, the December MPC meeting was a non-event. The cable continues to ratchet higher as investors grow more confident that a Brexit deal is likely. The latest uptick modestly recalibrates our expectations of what a knee-jerk reaction to a positive deal outcome to look like. Here, we think we could see a push above 1.3712, but GBP/USD could begin to see interest to fade an announcement arise between 1.3750 and 1.38. In any case, we think sterling will be a sell in the wake of any announcement, as the pound faces shaky fundamental underpinnings.”