BOE’s Dovish Shift Sees More Calls for January Rate Cut

LONDON (Capital Markets in Africa) – The Bank of England’s dovish shift in the past week has already rippled through markets, and now economists are starting to react too.

NatWest Markets, a division of Royal Bank of Scotland Group Plc, changed its interest-rate forecast and now sees a cut to 0.5% from 0.75% at this month’s meeting. Economist Ross Walker sees a second reduction later in the year, having previously predicted no move by the BOE at all until May. Deutsche Bank AG and Nomura also forecast a rate move in two weeks.

More forecast changes may follow after Governor Mark Carney and other policymakers said the BOE is looking at whether more stimulus is needed for the economy. Those comments have already sent the pound on its worst losing streak since May, and market bets on a rate cut on Jan. 30 have jumped to around 50%.

Economic data on Monday showed the U.K. economy unexpectedly shrank in November. The year-on-year rate of 0.6% was the weakest since mid-2012.

Walker said there’s been an “unmistakable underlying deterioration in the U.K. economic data.”

The pound fell 0.2% to $1.2967 as of 9.10 a.m. London time, heading for a sixth straight decline. U.K.

government bonds rose, pushing 10-year yields down three basis points to 0.72%, the lowest since early December.

In his first major speech of 2020, Carney said the Monetary Policy Committee has plenty of firepowers to aid the economy if necessary. Policymaker Silvana Tenreyro said she may support a rate cut in the next few months if sluggish global growth and Brexit uncertainty persist. Gertjan Vlieghe went further, saying he’d need to see an improvement to justify waiting to cut.

Source: Bloomberg Business News