BoE Review: MPC keeps policy rate on hold, shifts from easing to neutral bias

The Bank of England (BoE) left monetary policy unchanged at the November meeting that concluded on Thursday, maintaining a more hawkish tone than what was anticipated by market participants. The board shifted from an easing bias to a neutral bias, saying that it "can respond in either direction".

Economic data has remained remarkably resilient to the Brexit uncertainties while the steep GBP depreciation means that CPI inflation will increase sharply next year. It seems that the BoE is quite satisfied that its actions have supported the economy and moved inflation back to higher levels consistent with the 2 percent target.

The BoE now expects higher short-term real GDP growth as economic data so far has been resilient. The bank also expects CPI inflation to be higher than the August projections as the GBP has depreciated further. The BoE expects CPI inflation to peak just below 3 percent in the coming years.

"Due to this shift and the resilient economic data, we no longer expect the bank to ease monetary policy further. Over the medium term, we do not see the policy events as a major game changer for GBP. We still target EUR/GBP at 0.91 in 3M and 0.92 in 6M," Danske Bank commented in its recent research report.

Meanwhile, the High Court ruled that the parliament and not the government has the power to trigger Article 50. If the parliament will be more involved in the negotiation process, it means that a ‘softer’ Brexit has become more likely, as a majority of the members of parliament have a pro-EU stance and has voted to remain.