Bank of England holds interest rates steady before Brexit

Outgoing governor of the Bank of England Mark Carney

Even if the Bank does keep interest rates on hold, BofA's Sharma expects the Pound to remain under pressure, with any strength proving short-lived in nature and any respite for the Pound is therefore expected to be limited.

Despite warning that Brexit would hold back growth in the long run, on the eve of Britain's formal departure the central bank's rate-setting monetary policy committee (MPC) voted to leave rates unchanged at 0.75%.

Prime Minister Boris Johnson's unexpectedly emphatic December 12 election win has boosted optimism, particularly among businesses who had cut investment while parliament failed to resolve the Brexit impasse.

With Brexit just hours away, the pound is on the march - but it's not down to optimism about the United Kingdom leaving the EU.

Tej Parikh, the chief economist at the Institute of Directors, said: "There is mounting evidence that the United Kingdom economy may have experienced a bit of a post-election bounce, so on balance the bank made the right call to hold interest rates for now".

Speaking at a press conference after the decision to leave all the BoE's monetary policy levers unchanged, Carney said survey data suggest United Kingdom economic activity has picked up sharply since the General Election late past year.

Sterling gained 0.8% to as high as $1.3245, its highest level in eight days on Friday.

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The decision, which comes a day before the United Kingdom leaves the European Union, marks the final time that Mark Carney will be at the helm at the bank.

"I don't have a regret", Carney said when asked if he had any with regard to monetary policy moves during his tenure.

Carney highlighted encouraging signs for the economy in early 2020, but said the BoE was waiting to see if this would be borne out in hard economic data. This is a genuine coin-toss meeting, with the 52% market expectation of a rate cut highlighting that we are nearly guaranteed volatility on the day.

Most economists think the economy will have done well to eke out growth any higher than 1 per cent previous year, which would be the lowest yearly rate since the country emerged from recession a decade ago. This compares to the bank's forecast of 0.1%.

"Policy may need to reinforce the expected recovery in growth", the committee said, according to the minutes of its meeting.

The verdict has potential to embarrass the chancellor, Sajid Javid, who used an interview with the Financial Times this month to say he would target economic growth of between 2.7-2.8%.

Carney, who became a British citizen during his time as BoE governor, took up the post in July 2013 with the United Kingdom economy struggling to recover from the global financial crisis and the BoE's main interest rate at a then record-low 0.50 percent. The two dissenters were Jonathan Haskel and Michael Saunders, in a repeat of December's meeting when they also voted to lower rates.

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