Johnson's Brexit gamble sparks bets for BOE rate cuts in 2020

[LONDON] Traders have ramped up bets for the Bank of England (BOE) to lower interest rates at the end of 2020 after Prime Minister Boris Johnson reignited fears of a no-deal Brexit.

Money markets see an 80 per cent probability of the central bank cutting by 25 basis points in December 2020, up from about 30 per cent on Friday. While Mr Johnson's victory last week fueled immediate optimism for a smooth departure from the European Union, he has since announced plans to prevent Britain extending its transition period past the end of 2020, spooking financial markets.

The bets reflect concern that further Brexit uncertainty could usher in the kind of economic gloom that would add pressure on the central bank to adopt a more growth-supportive policy stance. The BOE's Monetary Policy Committee is expected to keep rates at 0.75 per cent at Thursday's review.

The last time traders saw similar odds on lower rates from the BOE was at the beginning of the month when President Donald Trump suggested a trade deal with China could be delayed until after the US election, which triggered haven buying of bonds.

Other signs have been emerging in recent days that the UK economy could be heading for further trouble. Factories posted the weakest performance in more than seven years in December, increasing the chances that the economy will shrink in the fourth quarter.

BLOOMBERG