On Thursday, 7th February 2019 , the Bank was due to deliver its decision on the interest rates. BOE will have to bear the pain with global growth slowdown and Brexit uncertainties impacting on its business performance. The chance of an actual change of rate thus seemed very bleak since end of last year. BOE Governor, Mark Carney was expected to have all the excuses ready for that as well.
The Brexit uncertainty and the global slowdown is going to show up on the British economy. Prime Minister Theresa May is trying hard to convince the British lawmakers in her party while attempting to pursue EU leaders for some relaxations on key issues that the bloc is stagnant on. The US federal reserve also signalled that it might soon be getting over with its raising interest rate run of three years.
BOE is holding the assumption that the Brexit is going to be smooth one rather than being a no deal exit. It is looking at Philip Hammond, Finance Minister, for relaxation on public spending as a counterbalance to the drag on the UK’s economy due to a weak global outlook. The Bank’s quarterly inflation forecast seems to be significant here. It might be a little different at the time of publishing, and if nothing else, it will help chart out what view does the bank hold at present.
As per some investors, there has been a possibility of higher inflation forecast pushing investors to think that there could be a chance of BOE rate hike more sooner than expected. BOE’s target of 2 per cent inflation target is very close to the actual rate but, it does not portray the full picture. The growth rate of wages in Britain has been the highest in a decade, to the surprise of BOE.
In view of the same, the nine-member Monetary Policy Committee have been looked upon on economic front. The picture could be way different from what it looks now by the time MPC (Monetary Policy Committee) announces its policy decision. The impending policy decision on March 21, is just before the Brexit, due on March 29. More clarity will be there from the international arena as well as from the progress on China and the US trade war and whether hard Brexit is happening or not. BOE has warned that a global financial crisis may affect the UK far less in comparison to no-deal Brexit.
The market seems to have accepted the idea of no rates hike from BOE, but they could be in for a big surprise through this year. Many Capital economists believe that BOE will increase rates soon. Paul Dales, economist with Capital economics said an unusual situation where the US Fed is cutting rates and BOE raising it could be seen. It happens very rarely, but Brexit is one such rare incident, he added.
The needle has also been moving on BOE slashing the growth forecasts. In fact, the outlook for 2019 has now been downgraded from November figure of 1.7% to 1.2% while interest rates have been parked at 0.75%, as at February 07, 2019.
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