The British pound made a decisive break below critical support at 1.9600/50 on Wednesday morning, as UK data was weak all around. First, Nationwide’s measure of consumer confidence plunged to 70 from 77, the lowest reading since record-keeping began in May 2004.
Meanwhile, industrial production unexpectedly fell 0.5 percent during the month of March, led by weakening output of manufactured goods like cars and electric, gas, and water supply. The news suggests that economic growth in the UK is being held back by not only waning consumer and business spending, but also foreign demand amidst a global slowdown. The news only added to speculation that the Bank of England will cut rates on Thursday morning, especially as the minutes from the last Monetary Policy Committee meeting – when the BOE cut rates to 5.00 percent – showed that they are much divided in their stances. Indeed the minutes showed that six members voted for the 25bp cut, two members voted for no change, and one member voted for a 50bp cut. Nevertheless, the BOE tends to take a slow-and-steady approach when it comes to changing monetary policy, and given the upside risks to inflation looming from booming commodity prices, they are very likely to leave rates unchanged. Furthermore, given the recent drop in the British pound ahead of this meeting and mixed speculation on the outcome, the lack of a rate cut could be enough to give the currency a boost on the decision. View our outlook for the BoE and ECB rate decisions and it’s possible impact on EUR/GBP.
