BoE expected to keep the ‘wait-and-see mode – UOB

Economist at UOB Group Lee Sue Ann gives her views on the potential future move of the Bank of England.

Key Quotes

“UK’s consumer price inflation (CPI) came in flat for December versus 0.2% m/m previously. Year-on-year, CPI softened to 1.3% y/y for December, down from 1.5% y/y in November. December’s inflation rate was the lowest since November 2016.”

“Also on Wednesday, Michael Saunders, reiterated his view that borrowing costs should be lowered. Saunders is one of two dissenting voters on the BOE’s nine-member Monetary Policy Committee (MPC). He has been calling for an immediate 25bps rate cut since November 2019, citing downside risks from a weaker global economic outlook and from persistent Brexit uncertainties negatively impacting corporate and household spending.”

“Last week, two other MPC members and BOE outgoing governor Mark Carney also suggested that rates could be cut, depending on how the economy performs.”

“The BOE will publish fresh forecasts on growth and inflation alongside its next policy decision later this month on 30 January, which will provide more clarity on the outlook. Before that, all eyes will be on the slew of PMIs releases on 24 January, which will provide an overview of the UK economy for the start of 2020. At this juncture, we still think the core BoE position is still to ‘wait-and-see’ and remain data-dependent. We are not ruling out a rate cut, but we think further easing will occur only when we see a more significant deterioration of the UK labour market. After all, there has been some evidence since the December’s election that suggests that sentiment has improved.”