European session review: GBP strengthens after BoE’s monetary policy announcement and UK’s construction PMI data

GBP rose against most major currencies in the European session on Thursday, supported by the latest monetary policy announcement by the Bank of England (BoE) and upbeat UK construction activity data for July.

The BoE announced its Monetary Policy Committee (MPC) voted 9-0 to maintain Bank Rate at 0.1 percent at its August meeting, as widely expected. The Committee also voted unanimously for the Bank to continue with its existing programs of the UK government bond and sterling non-financial investment-grade corporate bond purchases, maintaining the target for the total stock of these purchases at GBP745 billion. In addition, the BoE sounded less pessimistic about the prospects of the UK's economy, hit by the COVID-19 pandemic. The British central bank said that the UK's GDP "is not projected to exceed its level in 2019 Q4 until the end of 2021", later than its previous estimate of a recovery by the second half of 2021. But its projections for 2020 were less gloomy than in May.

Better-than-expected July PMI data for the UK's construction sectors also added to the positive sentiment. The IHS Markit reported the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index climbed to 58.1 in July from 55.3 in the previous month, beating economists' forecast of 57.0. The latest reading signaled the quickest expansion of overall construction work since October 2015. Residential building was the major growth driver in July, with activity increasing to the greatest extent since September 2014.