BoE expected to remain ‘on hold’ for the time being – UOB

Economist at UOB Group Lee Sue Ann assessed the recent BoE event.

Key Quotes

“As widely expected, the Bank of England (BoE) kept its monetary policy unchanged at their November meeting. What came as a surprise, though, was the split 7–2 vote by the nine-strong Monetary Policy Committee (MPC) to maintain the Bank Rate at 0.75%, whilst voting unanimously to keep the stock of sterling non-financial investment-grade bond purchases at GBP10bn and the stock of UK government bond purchases at GBP435bn”.

“MPC members Michael Saunders and Jonathan Haskel both opted for a 25bps rate cut, saying their vote was driven by reduced job vacancies and downside risks from the global economic slowdown and Brexit”.

“As reflected in the minutes and subsequent press conference by BoE Governor Mark Carney, the BoE makes it clear that, although the current UK growth slowdown is due “partly” to the weakening global economy, it is above all caused “by increasingly entrenched Brexit-related uncertainties”.

“The Bank’s latest Monetary Policy Report, for the first time, included precise Brexit assumptions based on the withdrawal agreement struck with Brussels. It believes leaving the EU will lead to the economy growing more slowly, but had previously been basing its forecasts on the average impact over 15 years”.

“Despite the dovish tilt at the latest meeting, we expect the BoE to be in a wait-and-see stance. We believe that the two dissenters against a large majority is still somewhat premature in tipping the balance for a rate cut, especially with a no-deal Brexit scenario off the immediate agenda. We would prefer to wait for the outcome of the impending election and its subsequent impact on how Brexit may proceed, before making changes to our forecasts”.