BOE kept the Bank rate unchanged at 0.75% but revised lower GDP growth and inflation forecasts. British pound strengthened against US dollar as the Committee voted 7-2 for the decision. The market had anticipated more members to support rate cut. Once again, Michael Saunders and Jonathan Haskel favored lowering the policy rate.

The decision to keep the powder dry at this meeting signals that the members focused on the green shoots seen recently. They acknowledged improvement in manufacturing and service sector, as well as signing of Phase I trade deal between US and China. As noted in the minute, “international developments had been positive” since the last meeting, while “the most recent UK data supported the forecast of a near-term recovery in growth”. Governor Mark Carney also suggested that various indicators have improved sharply after elections

At the accompanying statement, BOE noted that monetary policy may “need to reinforce the expected recovery in UK GDP growth should the more positive signals from recent indicators of global and domestic activity not be sustained or should indicators of domestic prices remain relatively weak”. It added that “some modest tightening” could be implemented if the “economy recovers broadly in line with the MPC’s latest projections”. The language revealed that members in the longer-term are getting more concerned about growth slowdown and moderation in inflation.

- advertisement -

As such, the Committee has revised lower economic forecasts. GDP growth is revised lower +0.8% this year, compared with +1.2% projected in November. Growth is expected to pick up to +1.4% and then to +1.7% in 2021 and 2022 respectively, compared with +1.8% and +2% projected in November. On inflation, the central bank estimates that CPI could be troughed at 1.24% in 3Q20. In November, it projected the bottom could be seen in 2Q-3Q20. Inflation would then pick up to +1.53 and +2.01% in 2021 and 2022 respectively, compared with +1.51% and +2.03% projected in November. Note, however, that these forecasts were made based on the assumption that BOE would cut the policy rate by once this year.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.