Simeon Willis, Chief Investment Officer at XPS Pensions Group: “For some time the MPC has been firmly holding off raising rates until Brexit is resolved. However, now with an orderly Brexit just round the corner, or at least the start of the transition, it’s the below target CPI inflation figures that are keeping rates flat, and potentially driving them lower in the months to come. It would seem the UK economy is no closer to being ready to support more expensive borrowing rates, possibly further behind than was previously thought.”
Andy Scott, Associate Director at JCRA: The Bank of England’s decision to hold rates turned out to be by a majority consensus, prompting sterling to strengthen as expectations for a future rate cut were slashed. In the lead up to the decision, the market odds for a cut were 50/50, with comments from Governor Carney and members of the MPC recently over the continued slowdown in the economy driving expectations for lower rates.
It seems the increased certainty over Brexit - and a government that has a majority to proceed with a planned fiscal expansionary policy - have eased concerns over data from the final months of 2019 that showed the economy stalling. The limited post-election surveys and economic data have also pointed to a significant rebound in business and consumers outlook for the UK economy, which should translate into a pickup in GDP growth. What remains to be seen of course is whether this optimistic sentiment is maintained and leads to a reversal of the weakening growth trend. After more than three years of uncertainty and gloom over Brexit, 2020 could reflect greater clarity and vision for the UK economy that drives a much-needed recovery.
Rupert Thompson, Chief Investment Officer at Kingswood, said: “The MPC ended up leaving rates unchanged at Mark Carney’s final meeting. The MPC had been increasingly leaning towards cutting rates but the widespread Boris-related bounce in business confidence seen since the Conservative victory, has clearly stayed their hand. The looming fiscal stimulus will also no doubt have contributed to the vote for no change. The vote was 7-2 in favour of leaving rates unchanged, the same as in the previous meeting, whereas the expectation had been that one or two more MPC members would join the two existing doves. If as is likely, the bounce in the soft sentiment data is sustained and over coming months feeds through to some improvement in the hard economic data, rates will very likely remain on hold. Indeed, further out, the MPC is still talking of the need for some modest tightening of policy if the economy recovers as it expects.”
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