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Bank of England to hold steady on Jan 30 but chance of a cut high: poll
[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 per cent 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 per cent in December, below all expectations in a separate Reuters poll and a far cry from the Bank's 2 per cent 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 per cent 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 Mr Carney's last, however, and as he has been criticised 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 per cent 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 per cent against the dollar after the inflation data and money markets now see around a 57 per cent chance of a rate cut this month compared to 49 per cent 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 per cent in the latest Reuters poll from 15 per cent given last month.
"This risk increases with the obsession of Johnson to refuse any extension of the transition period," Jean Louis Mourier at Aurel BGC said of the chance of a so-called hard Brexit.
Before and since the June 2016 referendum economists have warned that the decision to leave the EU would hurt the British economy, and although a feared recession never materialised, growth has slowed.
The economy will expand just 1.1 per cent this year as firms and consumers remain cautious amid the uncertainty surrounding Brexit, but accelerate to 1.5 per cent next year after the situation is clarified, the median of nearly 90 economists polled showed.
There is just a 20 per cent likelihood of a recession this year and a 25 per cent likelihood of one in the next two years, down from the 25 per cent and 30 per cent chances given in a December poll.