Bank of England surprises markets with inaction, GBP spikes in response

Bank of England surprises markets with inaction, holds key interest rate steady despite uncertainty over ‘Brexit’. Although, it signaled that a potential cut could come next month in a bid to bolster the economy. UK’s MPC (monetary policy committee) on Thursday voted 8 to 1 to maintain its benchmark interest rate at 0.5 percent, where it had remained unchanged since March 2009.

Two weeks ago BoE’s governor Mark Carney cited the continuing 'Brexit' uncertainty as a major drag on the UK's economy, creating tighter financial conditions with potential repercussions around the region. He said the “the economic outlook has deteriorated.”

“The committee had taken some reassurance from the evidence that markets had continued to function effectively throughout the period,” according to the committee’s minutes. “The overall resilience of the UK financial system, and the flexibility of the regulatory framework, had allowed the impact of the referendum result to be dampened rather than amplified.”

The uncertainty has rattled the financial markets. In the aftermath of the referendum, the pound plunged to 31-year lows. The GBP spiked in response to the surprise decision by the BoE to keep unchanged. Cable hit highs of 1.3478 before paring some gains to trade at 1.3380 at around 12:00 GMT.