BoE to cut rates in January – Danske Bank

Analysts from Danske Bank, expect the Bank of England (BoE) to cut interest rates in January to offset slower growth. 

Key Quotes: 

“Following the dovish policy signal sent by the Bank of England last week, we now expect the Bank of England to deliver a 25bp cut at its next ‘big’ meeting in January 2020, taking the Bank Rate to 0.50%. This forecast does not depend on the election outcome, although we believe a cut would be more likely in the event of a hung parliament than otherwise. The market is pricing in a 33% chance of a cut in January.”

“We believe it is a close call whether there will be another rate cut in the second half of 2020 but this is not yet our base case. Whether or not a cut will come depends on Brexit and whether we are heading for a permanent US-China trade deal ahead of the US presidential election in November 2020 (50% probability of this happening). Given the high uncertainty about predicting the outcome of the upcoming UK election, it is a difficult call to make.”

“Private consumption is still growing at a decent pace and real wage growth is solid. However, recently we have become a bit concerned about the development in the labour market. Despite Brexit uncertainty and the investment recession, companies have continued hiring people, until now. Although the jury is still out, the  atest two jobs reports showed falling employment and soft indicators suggest this trend may continue. If this is the beginning of a new trend, this may start a negative downward spiral, which could lead to a more severe economic slowdown. In this case, we believe the Bank of England would be likely to cut the Bank Rate more quickly, down to 0%, and probably restart QE.”