Bank gives interest rate verdict as speculation mounts over cut
Signs of economic pick-up may delay move
THE BANK of England will meet today to deliver a verdict on interest rates amid growing speculation that policymakers could introduce a cut in an attempt to re-invigorate the economy.
Economists believe tentative signs of a pick-up in the economy may be enough to stay the Bank’s hand, but financial markets are predicting a 60 per cent chance of a cut back from 0.75 per cent back to the levels last seen in August 2018 of 0.5 per cent.
Gloomy economic data has spurred on a raft of Bank rate-setters to signal growing support for a cut, with the vote expected to be a close call.
Stefan Koopman, a senior market economist at Rabobank, speculated that a rates cut will be introduced.
He added: “We have been flagging the risk of Bank of England rate cuts in 2020 since late-summer.
“In our view, global growth will remain sluggish and we don’t expect the uncertainties regarding the UK’s future possible trading relationships to abate any time soon.”
Two of the nine-strong Monetary Policy Committee (MPC) have voted to lower rates from to 0.5 per cent in the last two meetings and disappointing growth data and falling inflation could see other policymakers join them.
But many economists believe better news on the UK’s jobs market and signs of improving sentiment
in key areas of the economy may keep rates on hold.
The Bank will have its latest quarterly forecasts to hand in the Monetary Policy Report accompanying the noon decision and will have been closely watching recent sentiment surveys in the
Stefan Koopman, senior market economist at Rabobank. economy for clues on any post election “Boris bounce”.
The preliminary reading for purchasing managers index (PMI) showed Britain’s private sector returned to growth for the first time in five months in January.
James Smith, developed markets economist at ING, is forecasting for rates to be held, with four of the MPC members at most voting for a cut.
He said: “It’s a close call, but a recent post-election pick-up in sentiment should be enough to see the Bank of England avoid cutting interest rates this month.”
The EY Item Club is also predicting rates will stay on hold today and for the next 18 months, having upgraded its growth outlook to 1.2 per cent for 2020 from the one per cent previously predicted.
But it stressed the MPC’s decision “looks to be on a knife edge and is very hard to call”.
The City is more divided, after official monthly growth figures showed gross domestic product (GDP) unexpectedly fell by 0.3 per cent in November after a weak performance in the manufacturing sector.
This was followed by data showing inflation tumbling to a three-year low of 1.3 per cent in December.
Retail figures from the CBI on Monday also have little comfort, showing sales flat-lined for the third straight month in January.
It will mark the last rates decision for Bank governor Mark Carney, who is handing over the reins to Financial Conduct Authority boss Andrew Bailey on March 16.
DECISION:
In our view, global growth will remain sluggish.
PICTURE: NIKLAS HALLE’N/AFP