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UK CommentDovish BoE remains on hold

  1. Policy left unchanged; the decisions were unanimous
  2. Weaker global growth and Brexit uncertainty had led to further slowing of UK economy
  3. The BoE likely to remain on hold ahead
Policy left unchanged; the decisions were unanimous
The Monetary Policy Committee (MPC) of the Bank of England (BoE) decided to leave the policy rate unchanged at 0.75 percent today. The asset purchase programme was also left unchanged. The decisions were unanimous.
Weaker global growth and Brexit uncertainty had led to further slowing of UK economy
The BoE, as expected, pointed to Brexit uncertainty remaining elevated, which together with slowing global growth and a weaker outlook had led to a slowing of underlying growth in the domestic economy. While private consumption growth still remained resilient, growth in investment and exports were weaker. The MPC pointed to a still tight labour market, and strong pay growth, but also said that employment growth appeared to be softening. The BoE now expects GDP growth of 0.2 percent in Q3, which is 0.1 percentage points lower than in the August report.
The BoE likely to remain on hold ahead
In our view, the MPC struck a dovish tone today. While Brexit blurred the outlook, the BoE indicated that only a best-case scenario would lead to the policy rate rising over the forecast horizon. The BoE said that for the policy rate to rise, Brexit would have to be smooth and orderly and global growth would have to recover. However, if the Brexit uncertainty persists, demand growth in the UK would probably remain weak for longer and inflationary pressures would be reduced. Or worse, if there is a hard Brexit, domestic demand would probably fall outright. However, the GBP would probably also weaken, leading to upward pressure on inflation. Our baseline assumption is that Brexit will be postponed again, prolonging the Brexit uncertainty. We therefore expect the BoE keep the policy rate unchanged over the coming months. In the event of a no-deal Brexit, we believe the BoE would cut the policy rate to mitigate the negative effects on the real economy.

Disclaimer

Kari Due-Andresen

Chief Economist Norway

Norway and UK

kadu01@handelsbanken.no

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