BoE Seen Unchanged, Minutes Key to Rate Outlook

The Bank of England is widely expected to leave interest rates and asset purchases unchanged following its meeting today, as the global economic slowdown, lack of inflation and strong pound continue to overshadow the ongoing improvement in the domestic economy.

It was only last month that Governor Mark Carney shelved plans to consider raising rates at the turn of the year and instead suggested that the tightening cycle may now begin towards the end of 2016. While I believe the U.K. economy is in a position to withstand a rate hike and recent unemployment and wage data possibly even warrant it, I can understand why the central bank may be reluctant given the number of possible risks to the economy next year.

Carney alluded to a few of these – lower global growth, low inflation, strong pound – but on top of that, the U.K. is expected to vote on EU membership in the middle of next year and more government spending cuts are planned. These are all significant headwinds for the economy and to raise interest rates in the middle of it all could be quite risky. If the economy manages to ride this out, it will be far better placed for the beginning of a tightening cycle.

Alongside the decision we’ll also get the minutes and voting from the meeting which provides additional insight into just how close policy makers are to raising rates and what may currently be standing in their way. Once again, Ian McCafferty is expected to cast the sole vote for a rate hike this month but it will be interesting to see if anyone else within the committee is close to joining him.

A surprisingly strong build in oil inventories prompted a rebound in oil on Wednesday but the move was short-lived and before long, Brent and WTI were back trading lower on the day, with the former actually recording new lows before the end of the session. This just goes to show how bearish both of these still are at the moment following OPEC’s decision to continue pumping at the same rate or higher regardless of the huge oversupply and low prices. At this rate, we may not have to wait too long to see Brent back at 2008 lows, around $36.20, while a break of this would see it trading at its lowest level in more than a decade.