Rates hold at 0.75%
Pound rallies as Bank of England holds rates
- Despite much speculation, the Bank of England holds rates at 0.75%
- Recent economic data, particularly the PMIs released last week, is likely to have been the deciding factor behind today’s announcement, despite the rumours of a rate cut following weak inflation and retail sales data earlier in the month
- The considerable bounce-back witnessed in the PMIs, breaching the usual rate cut mark of 52, has steered the UK back on track. However, it is important this momentum is maintained moving into 2020 if a rate cut is to be avoided
I think it’s unlikely the dovish tone will vanish immediately within the BOE and they will be keeping an eagle-eye on forthcoming data, with rate cuts still firmly in mind to remove additional downside risks to the economy. On the other hand, if the momentum was to continue, I believe the focus will tilt to more of a hawkish outlook towards the end of the year, particularly if inflation does start to pick up.
In my view, this decision to hold rates today is rational, considering the limited monetary ammunition we already have. The bounce-back in PMI activity alongside the increased confidence of manufacturers post-election (as indicated by the CBI survey) indicates an economy which is picking itself back up. I’m not ruling out a rate cut in 2020, but with growth set to accelerate this year and positive early signs, holding some firepower back is the best decision for the longer-term.
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