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UK CommentBOE's next rate decision could be in either direction

  1. The next move in interest rates is up to the politicians
  2. The economy is performing as expected
  3. Markets unaffected
The next move in interest rates is up to the politicians
As was heavily expected, the BOE left monetary policy unchanged, awaiting political developments. It still sees "an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent" should the economy behave as expected. That would, of course, imply an orderly Brexit.
The economy is performing as expected
The near future of monetary policy rests entirely on the outcome of the Brexit project. "The appropriate path of monetary policy will depend on the balance of these effects on demand, supply and the exchange rate," the bank said. When it comes to economic data, its February Inflation Report seems to be on track. "CPI inflation rose slightly to 1.9 percent in February and is expected to remain close to the 2 percent target over coming months. The labour market remains tight and annual pay growth, having risen through 2018, has remained around 3.5 percent."
Markets unaffected
There was only a very small drop in short rates after the announcement. It is worth noting that markets do not share the view that the policy rate will be raised after an orderly Brexit, as they are only pricing in less than a 20 percent chance of that this year.

Disclaimer

Lars Henriksson

Strategist

Foreign Exchange

lahe06@handelsbanken.se

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