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Rate cut is not a dead cert – Oxford Economics

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  • 23/01/2020
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Rate cut is not a dead cert – Oxford Economics
A base rate cut by the Bank of England’s (BoE) Monetary Policy Committee (MPC) should not be treated as absolutely certain, Oxford Economics is warning.

 

Economists at the Oxford University-based organisation have warned they are sceptical that the MPC will take the chance to cut rates at the end of the month.

They noted that the apparent shift by some MPC members towards looser policy was merely a reiteration of the committee’s earlier guidance.

And the organisation added that much of the data published in the last month “probably exaggerates the UK economy’s weakness”.

Financial markets are currently giving a 60 per cent chance of rate cut, up from six per cent on 13 January following the MPC member statements.

“But the market’s past success in predicting interest rate decisions hasn’t been fool proof. And there are other reasons to think that a rate cut this month is far from assured,” the economists said.

“For one thing, both governor Mark Carney and MPC member Silvana Tenreyro’s recent statements merely reiterated the MPC’s position from late last year.

“Gertjan Vlieghe has also made clear that fulfilling his dovish instincts would depend on the economic evidence that emerges in the wake of December’s general election.

“This qualification is important,” they added.

 

Economy more upbeat

It emphasised that the December General Election’s clear outcome should have eased the uncertainty, and limited economic evidence since then has been more upbeat.

“What’s more, the immediate pre-election period was not all gloom,” the report said.

“Employment saw a strong gain in the three months to November while the employment rate reached a record high

“At the same time, statistical incongruities suggest that the economy was not as soft in late-2019 as the headline numbers suggest,” it added.

As a result, the body is expecting a 6-3 vote to keep current policy on hold on 30 January, which would suggest only a slight strengthening in mood to issue a rate cut from the two previous 7-2 votes.

 

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