BoE: Downbeat tone – TD Securities

Analysts at TD Securities note that the Bank of England left its policy rate on hold, as unanimously expected, but but the statement and minutes had a bit more meat to them than TD was expecting, and left a fairly downbeat tone.

Key Quotes

“The BoE revised its near-term GDP forecast lower (Q3 GDP from 0.3% q/q to 0.2%), and the outlook for global growth has weakened due to the intensified trade war, which is having a "material negative impact" on global investment. However, the BoE also said that the additional stimulus from the government's spending review earlier this month should add 0.4% to GDP over the next 3 years, so it looks like fiscal is coming to the rescue to some extent.”

“On Brexit, the BoE suggested that in the case of a lengthy Brexit extension, it may need to cut rates, even if a no-deal Brexit is avoided.”

“While the BoE maintained its conditional hiking bias - rates will rise at a gradual pace and a limited extent, assuming a smooth Brexit and some recovery in global growth - as those conditions are further away from materializing, the door seems to have been opened to a rate cut instead.”

“Our Brexit base case sees an extension to 31 Jan, but if the can is going to be kicked down the road beyond that point (likely in the case of a general election, a Labour win, and another extension in order to negotiate a new withdrawal agreement and hold a new referendum), then we could see the BoE cut rates in H1 2020.”