“Oh the Grand Old Duke of York,
He had ten thousand men,
He marched them up to the top of the hill,
And he marched them down again.


And when they were up, they were up,
And when they were down, they were down,
And when they were only halfway up,
They were neither up nor down."


In August, the Bank’s Monetary Policy Committee (MPC) cut interest rates to 0.25% and restarted quantitative easing in the name of stimulating the post-Brexit economy. Market expectations were “marched up to the top of the hill” with the statement:

a majority of members expect to support a further cut in Bank Rate … during the course of the year.

However, now that we have reached November, the additional cut in interest rates has become rather conspicuous by its absence. Market expectations have been “marched back down again” as the MPC has shifted to a balanced prognosis. Now we are told that:

monetary policy can respond, in either direction, to changes to the economic outlook as they unfold.

There are several reasons for the abrupt change in gears but the most important is the renewed depreciation in sterling since August. In the delicate language of central bankers, we have been told that the MPC is “not indifferent” to the level of the exchange rate and:

there are limits to the extent to which above-target inflation can be tolerated.

This change in message is particularly important for thinking about future exchange rate risks. We strongly believe that holding some foreign currency risk is an important diversifier for multi-asset portfolios. However, with sterling now plumbing depths rarely seen in the last 200 years, it could be time to start scaling back that risk. On balance, we think sterling is likely to appreciate, not depreciate, over the months ahead.


The discomfort of the Bank of England (and the government) with the currency collapse is becoming increasingly palpable. As anyone familiar with the nursery rhyme will know, the Grand Old Duke of York rarely keeps his men at the bottom (or top) of the hill for long.