The British Pound: Analyst Opinion Split on What to Expect from a BoE Hold

- Analyst and market opinion divided over knife-edge BoE decision.

- Rabobank says GBP won't benefit much from unchanged rates.  

- Looks for Brexit talks, threat of May cut, to weigh if BoE holds.

- MUFG eyes gains, says "speculative GBP buying is picking up".

- BoE has stood pat since August 2018 as others have cut rates.

- Thursday is Governor Mark Carney's last outing as BoE chief.

© Bank of England. Alan Turing Banknote Concept.

- Spot rates: GBP/USD: 1.3012, -0.06%  | GBP/EUR: 1.1817, -0.02%

- Indicative bank rates for transfers:  GBP/USD: 1.2657-1.2748 | GBP/EUR: 1.1509-1.1592 |

- Indicative money transfer specialist rates: GBP/USD: 1.2800-1.2890 | GBP/EUR 1.1650-1.1717 >> Get a quote

The Pound was treading water against major rivals ahead of a knife-edge Bank of England (BoE) interest rate decision that's got analyst opinion divided on the outlook for Sterling over the coming weeks.

Consensus among economists suggests the BoE will opt to leave Bank Rate unchanged at 0.75% Thursday although financial market pricing implies more than 50% probability of a rate cut being announced at 12:00, while analysts are divided over what that might mean for the UK currency. 

"The extent of any GBP rally on a unchanged policy decision from the Bank of England today could be tempered by a couple of factors. Firstly, the Bank could drop a heavy hint that a rate cut could follow in May. Secondly, the news surrounding Brexit is also likely to be back in the headlines in the coming weeks," says Jane Foley, a senior FX strategist at Rabobank. "We see risk that any GBP rally today could be short-lived and expect that GBP/USD will be trading below the 1.30 level on both a 3 and 6 month view."

UK economic growth fell to just 0.6% in the year to the end of November, far below the full-year forecast of the BoE and also below the 1.25% expansion the economy is estimated to need in order to generate inflation. 

That's a problem for the BoE not only because it suggests the economy might be in trouble, but also because the consumer price index fell from 1.5% to 1.3% in December, leaving it a long way below the bank's 2% target. 

Above: Pound-to-Dollar rate at 4-hour intervals alongside 2-year GB government bond yield.  

January's economic figures prompted three senior policymakers including outgoing Governor Mark Carney's to suggest they could vote to cut rates as soon as this month which, given another two policymakers already voted to cut in December, could mean a reduction in Bank Rate is highly likely.  

And since then risks to the growth outlook appear to have mounted, with Boris Johnson keeping some form of 'no deal' Brexit on the table and given that a new deadly coronavirus is having some success in escaping from China, which is facing at least a sharp first-quarter slowdown due to the growing epidemic. 

The BoE has left rates unchanged at 0.75% since August 2018 and has consistently prepped markets to expect hikes in the years ahead because it's always forecast rising or resilient price pressures rather than falling inflation.

"We do not see a pre-emptive cut today as particularly negative for the pound and hence would expect any sell-off in response to a cut to be short-lived. Speculative GBP buying is picking up and we don’t see a pre-emptive 25bp rate cut as reversing that," says Derek Halpenny, head of research, global markets EMEA and international securities at MUFG. "With the US dollar well supported at present, we see opportunities for the pound to rebound after an initial sell-off versus the euro and other global growth sensitive currencies."

Above: Pound-to-Euro rate at 4-hour intervals alongside 2-year GB government bond yield.