Behind the scenes of the Bank of England rate hold

Comments provided by Mike Ayres a member of Menzies Business Services sector team.

As the UK continues down the winding Brexit path, economists and commentators alike were expecting to hear of another economic calming measure from the Governor of the Bank of England Mark Carney.

What’s happened at the Bank of England?

A widely publicised drop in the Bank of England’s base rate to 0.25% seemed on the cards; but as the markets listened in, the response was in fact “no change”. A little surprising perhaps, but none-the-less the move (or non-move) as it turns out has led to an improvement in the GBP-USD rate.

It seems the markets have settled down following their panic after the UK’s surprise decision to leave the European Union, and though there is still work to be done it is important to reflect on where we are now compared to where we were before and just after the result.

The Market Response?

The FTSE 100

At the close of the markets on 14th July it was at 6,654.47. Down on the previous day, but how does this compare? The last time it was this high was before September 2015. We could almost say the vote hasn’t impacted on this at all.

The FTSE 250

Often referred to as the more ‘useful’ guide to the UK’s performance as it includes more UK based companies (as opposed the multi nationals populating the 100 index), it closed on 16,788.04. This isn’t the highest it’s been all year, but this level is comparable to the levels recorded between March and June leading up to the vote.

The Currency Market – US Dollars

This is taking a bit more time to recover. The greenback is once again seen as a safe bastion for the rest of the world. With China’s markets unpredictable and both Sterling and the Euro impacted by a potential Brexit, investors have turned to the Dollar as well as our other mainstay, gold, for safety.

After being as high as 1.500 just before the vote was announced it now sits at 1.345, though this is up from a low of 1.286 shortly after the results were announced.

On the 13th June it closed at 1.419 though and had risen steadily on the expectation of a remain vote. However, it is still clear that a recovery of some sort has begun, and whilst this will take time, we appear to be getting there slowly and steadily.

In other areas, after an initial drop in footfall on the streets, the retail industry has appeared to return to pre-brexit levels according the Financial Times and other sectors appear to be seeing similar positive news.

What now for business?

These USD fluctuations are however going to make life tricky for UK importers and we can only hope that the markets continue to settle over the summer.

However, it seems like after some initial uncertainty the quick actions of the UK Government and the Bank of England have calmed the waters. So when the Monetary Policy Committee met yesterday they saw that a rate drop wasn’t yet necessary. We will see how they feel next month!

Find out more about Menzies Business services sector expertise. For more information contact Mike Ayres by email or by phoning 01252 541244.

Posted in Blog, Financial Services