Snapshot - Monthly viewpoint
Bank of England takes dovish turn, but for how long?
While two members vote to cut interest rates, recent developments suggest the prospect of this happening are fading.
The Bank of England (BoE) left interest rates at 0.75% as expected. However, there was a surprise as two members of the monetary policy committee voted to cut rates.
The more dovish vote (7-2 rather than the widely expected 9-0) came alongside a downgrade to the bank’s global growth assumptions.
Weaker UK growth is also a consequence of incorporating the new Brexit deal into the forecasts. In addition, the bank slightly softened its language on the need for future rate hikes.
At the margin, today’s outcome is a move back in step with central banks elsewhere and the easing in global interest rates. Nonetheless, recent developments suggest the prospect of an actual rate cut are fading.
First there are some signs of stability in the business surveys which track global activity. The UK purchasing managers' index ticked up in October, helped by better export orders.
Second, the opinion polls suggest a Conservative party win in the upcoming general election. Whilst this does not rule out the tail risk of a hard Brexit at some stage, it should reduce the drag from uncertainty as the current deal goes through.
Third, putting the opinion polls to one side, whoever wins the election we will see a substantial fiscal boost to the economy next year. The bank is factoring in the stronger spending plans made back in September, but both the Conservatives and Labour look set to go well beyond these, judging from today’s announcements from Sajid Javid and John McDonnell.
Whilst there remains considerable uncertainty over the election result there are sufficient reasons to think that the BoE’s dovish tilt may not last long into 2020.
 When a central bank takes a dovish stance it means it is promoting accommodative monetary policies that usually involve low interest rates.
- Keith Wade
- Economic views
For Accredited Investors Only. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument and is not intended to provide and should not be relied upon for accounting, legal or tax advice, or investment recommendations.
The information in this market outlook is derived from sources which we consider to be reliable. However, it may not in all cases be verified independently and we do not attest to its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Forecasts may be the consensus of extremely divergent possibilities and the full range of potential outcomes should be appreciated. No representation or warranty is made that any value (or proximity to) any value, return or forecast will be achieved. The opinions expressed are those of employees of Schroder & Co. (Asia) Limited, and reflect their judgement at this date and are subject to change. Reliance should not be placed on the views and information in this market outlook when taking individual investment and/or strategic decisions.
No part of this document may be reproduced in any manner without the prior written permission of Schroder & Co. (Asia) Limited.