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UK comment Bank of England leaves rates unchanged - a touch more dovish than expected

  1. Policy rate unchanged at 0.75 percent, QE programme also unchanged
  2. Global economy revised down
  3. Same wording on monetary policy
Policy rate unchanged at 0.75 percent, QE programme also unchanged
As widely expected, the Monetary Policy Committee (MPC) of the Bank of England (BoE) decided to keep the policy rate unchanged at 0.75 percent at today’s meeting. The QE programme was also unchanged. The decisions were unanimous.
Global economy revised down
The BoE sees lower global growth than in the Inflation Report from November, pointing to softer data from China and weaker indicators in the US. It is more focused on the fall in equity markets than the recovery. Also, it has taken note of widening non-financial corporate bond spreads and that wholesale bank funding costs have risen. Domestically, the BoE seems even more worried about the Brexit problem, which is understandable as we are closing in on the final date. It mentions that UK economic growth slowed in late 2018 and appears to have weakened further in early 2019, stating greater effects from Brexit uncertainty at home as a major culprit.
Same wording on monetary policy
The BoE repeats the message of wait-and-see. "The broader economic outlook will depend on the form of Brexit and whether the transition to the new state is abrupt or smooth. The MPC therefore judged that the monetary policy response to Brexit will not be automatic and could be in either direction." Market pricing currently indicates close to a 40 percent chance of a December, or sooner, rate hike. We believe that it will be a close call going up to the final date in March, and if there is an agreement in place the BoE will be inclined to hike rates sooner. Our main scenario, though, is still that the parting from the EU will have to wait, and consequently we see no rate hike this year.


Lars Henriksson


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