boe feb 2019 decision
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London, 7 Feb (LS News) – As widely expected, the Bank of England’s Monetary Policy Committee (MPC) kept its bank rates and bond purchases unchanged. The Bank also downgraded near-term forecasts for GDP growth, productivity and inflation in what was initially perceived as an overtly dovish statement.


The Bank announced at 1200 GMT the MPC voted 9-0 to maintain the Bank Rate at 0.75pct. Policy makers also voted unanimously to keep both the stock of UK government bond and non-financial investment-grade corporate bond buys at GBP435bln and GBP10bln, respectively.


The BoE confirmed the reinvestment of the maturing 4.5pct March 2019 Gilt. The GBP20.6bln total of reinvestments will begin the week of 11 March, with operations initially set at GBP1.146bln in each of the three maturity ranges.


The Bank’s staff revised down growth and inflation expectations over the three-year horizon.

From BoE
From BoE

The MPC statement blamed both domestic and external factors for the downgraded views, but continued to premise forecasts on a smooth outcome of the UK’s withdrawal from the European Union. However, BoE Governor Mark Carney said the probability of a ‘no-deal’ Brexit scenario is now far more likely than it was two years ago. 


Uncertainty around the government’s negotiations with the European Union also led the Bank to pull back from a hike-a-year trajectory.


Markets initially reacted to the dovish tone, with cable spiking down to an intraday low of 1.2853 from its pre-announcement level of 1.2890. UK 10-year bond yields slipped just over 2bps to 1.157pct from 1.18pct. Both markets saw a recovery once Carney reassured during the press conference that rate hikes were not off the table.


Howard Archer, chief economic advisor of the EY Item Club, is still expecting a UK rate hike this summer.


“On the assumption that the UK and the EU ultimately enact a Brexit transition arrangement in March 2019 and the UK economy sees some pick-up in activity amid reduced uncertainty, we expect the Bank of England to hike interest rates from 0.50pct to 0.75pct in August,” said Archer.


“Given its current heightened concerns over the economy, we suspect the MPC will want to have sustained evidence that the economy is performing reasonably well in the aftermath of the UK leaving the EU before acting,” he said.


Despite the general doom, gloom and pessimism among global central banks over the last week, much of the negativity has already played out in the markets and once uncertainty has started to fade the UK and global picture is expected to look a lot clearer and consequently, brighter.


Harry Daniels – LiveSquawk News


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