LONDON- The Bank of England is likely to keep borrowing costs steady on Jan. 30, the eve of Britain’s departure from the European Union, but there is a significant chance it will opt to trim Bank Rate following a slew of weak data, a Reuters poll found.
At the December meeting of the Monetary Policy Committee two of its nine members voted for a 25 basis point cut to 0.50 percent and since then several others — including Governor Mark Carney — have made dovish comments.
On Wednesday official data showed inflation fell to a more than three-year low of just 1.3 percent in December, below all expectations in a separate Reuters poll and a far cry from the Bank’s 2 percent target, fuelling expectations of an imminent interest rate cut.
“In recent days there has been heightened focus on the possibility that the Bank of England might opt to cut the 0.75 percent Bank rate over the coming months and perhaps even as soon as January 30,” said Victoria Clarke at Investec.
This month’s meeting will be Carney’s last, however, and as he has been criticized in the past for making political comments regarding Brexit he may be reluctant for his parting shot to be voting for a reduction in Bank Rate.
While 60 of 68 respondents in the Jan. 13-16 poll said there would be no change in policy this month they gave a median 35 percent chance the MPC will cut rates.
“We changed our call to a 25 basis point January rate cut just over a month ago in early December, and that call has clearly gained a lot of traction over recent weeks,” said George Buckley at Nomura.
Sterling fell 0.25 percent against the dollar after the inflation data and money markets now see around a 57 percent chance of a rate cut this month compared to 49 percent before the inflation reading. But median forecasts in the poll of over 60 economists show no change to borrowing costs until 2023 at least.
Britain will part ways with the EU at the end of this month, well over three years since Britons voted to leave, but will remain bound by all the bloc’s rules until the end of 2020 under an agreed transition phase aimed at smoothing its exit.
British Prime Minister Boris Johnson insists he will not ask for more time to secure a trade deal, even as European leaders, including EU Commission President Ursula Von der Leyen, cast doubt on the feasibility of reaching agreement in 11 months.
With time short, the median probability of a disorderly Brexit, when no deal on their future relationship is agreed between the two sides, nudged up to 20 percent in the latest Reuters poll from 15 percent given last month. — Reuters
