However, division remains between the members of the MPC with two members voting for a rate cut again this month – these same two policymakers voted for a rate cut at the previous meeting.
The MPC reiterates it “could respond in either direction to changes in the economic outlook in order to ensure a sustainable return of inflation to the two per cent target”.
The committee highlighted that uncertainty around Brexit may remain despite Boris Johnson’s election win guaranteeing the UK’s departure from the EU by 31 January, and in spite of his latest talks indicating a higher chance of a lighter exit deal than discussed with the EU before the elections.
The market remains cautious, estimating an 80 per cent probability of a rate cut by December 2020, with numerous banks forecasting a rate cut as early as January 2020.
Therefore, the upcoming UK economic data will take on even more importance to give clarity on the MPC’s rate direction.
The committee continued to monitor developments in the next stages of the Brexit process including UK’s future trading relationship with the EU and the recovery of global growth.
It has noted that if either global growth fails to stabilise, or Brexit uncertainty remains “entrenched”, then this will result in measures being undertaken via monetary policy.
In the scenario where the economy recovers in line with the MPC’s projections, then it is probable that policy will be tightened gradually.
The UK economy continued to stagnate over the August-October period as political uncertainty hit growth and global growth slowed down.
The committee reduced its Q4 projections to 0.1 per cent in the latest report, as a result of weakness in construction output during October 2019, and decreased business investment due to the general election.
The minutes indicate an inflation rate of 1.25 per cent in spring 2020, falling below the target rate of 2 per cent.
On a positive note, the MPC highlighted that household consumption increased by 0.4 per cent in Q3 2019, with retail volumes increasing at 0.2 per cent in the three months to October 2019.
It noted that most indicators were consistent, with a small rise in house prices in Q4. In addition, UK employment figures remained at record highs, signalling confidence in the job market.
Rate cuts in New Year
The markets still forecast the BoE base rate to be cut to 0.5 per cent in six months.
Other forecasted rates were unchanged, with the three-month LIBOR, two-year swap rate, three-year swap rate and five-year swap rates expected to remain at 75 bps for the next three years.
The ten-year swap rates are expected to stay at one per cent.
And Sterling has also wiped out all the gains made during the Conservative Party win on 12 December.