Bank of England MPC preview: wait & see mode

With no action expected BoE is likely to play second fiddle to Brexit developments.

Brexit 8

With no action expected BoE is likely to play second fiddle to Brexit developments.

The Bank of England MPC will give its final rate decision for 2020 on Thursday at 12:00 GMT in what has already been a big week for GBP/USD.  

Brexit & Covid
When the BoE meet there will almost certainly still be a lack clarity over Brexit, as post Brexit trade talks continue. At the time of writing there is a feeling that Brexit talks are firmly moving in the right direction which is being reflected in a surging pound. This is not the first time that we have been here and the base case is still that a deal is more likely to be agreed than not. 

The turn of the year will almost certainly bring disruptions. Brexit even with a deal will be a seismic change and covid restrictions could well tighten again after Christmas as well. In short, the need for the central bank to remain accommodative isn’t going anywhere fast, in fact it may even grow.

Hold steady for now
After expanding the QE programme by £150 billion in November and extending it until the end of 2021 the broad expectation is that the BoE will hold steady on rates and monetary policy for now. Instead Andrew Bailey and co. could provide signals of what they are willing to do should conditions deteriorate come the new year – increasing the pace of purchases could be an option. Should the BoE signal to additional QE, next year, this could drag on the pound, although any sell off could be quickly overcome if a Brexit deal is in sight.

Negative rates
This year has also seen significant speculation and discussion surrounding negative interest rates. However, right now a move into negative rates looks unlikely. This final quarter of the year hasn’t seen the same level of economic slowdown that was experienced in Q2 despite covid restrictions and lockdown measures hitting output in the service sector. The service sector PMI at 49.9 was just shy of expansion in December according to the preliminary PMIs a far cry from April’s 13.4.

In Q1 next year the BoE will have more clarity over vaccination roll outs and how Brexit is shaping up meaning the need to base monetary policy on guess work declines. For now the central bank’s hands are tied by the Brexit endgame.

GBP/USD chart thoughts 
GBP/USD trades at fresh yearly highs as it rallies towards 1.3550. It trades above its 50 & 100 sma on 4 H chart and above the ascending trend line dating back to early November. However the RSI is approaching overbought territory which should warrant caution. Although a Brexit deal could overshadow a move over 70 on the RSI.
Immediate resistance is at today’s high 1.3550, prior to 1.36 and 1.3730 levels from 2018. On the downside immediate support is seen at 1.3480, 1.3450  key levels from this week, prior to 1.34.

Learn more about forex trading opportunities.

More from Central Bank


This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit for the complete Risk Disclosure Statement.