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UK CommentPreview Bank of England: Its all up to Brexit now

  1. Monetary policy to be left unchanged
  2. Mixed data since the last meeing
  3. Brexit is as uncertain as ever
Monetary policy to be left unchanged
The Monetary Policy Committee (MPC) of the Bank of England (BoE) will meet on Thursday, February 7, with its decision due to be released at 13:00 CET. The last Inflation Report of 2018, with updated forecasts and a new assessment by the MPC, will also be published on that day, alongside minutes from the monetary policy meeting. At its December meeting, the committee noted that domestic inflationary pressures have continued to build and that is still the case, even if a stronger pound will help to ease the pressure in the near term. As earlier expectations of further hikes were dependent on a smooth and orderly Brexit, the committee in December changed its message so it depends on how Brexit is resolved. The monetary policy response could go either way. That message is highly likely to be repeated, as we are currently none the wiser about how and when the UK will leave the EU.
Mixed data since the last meeing
Macroeconomic numbers have been mixed since the last meeting. Unemployment surprised slightly to the low side and is back at a 43-year low, while weekly earnings are still growing at a good pace. Inflation has been broadly in line with projections, but the CBI survey pointed to increasing pessimism within UK industry. However, global downside risks seem to have decreased since the last meeting, at least from looking at financial markets.
Brexit is as uncertain as ever
Market pricing currently indicates close to a 50% chance of a rate rise before the year end. Obviously, the decision is completely up to what happens with the Brexit process in the near term. Our main scenario is still that the date for executing Article 50 will be postponed and that uncertainty will prevail for some time yet. However, it is a very close call and the chances of a deal ahead of March 29 have increased, in our view. In that case, the chances of a rate increase this year will increase. Even so, we still believe that the next rate rise is far away and that the BoE will remain on hold for at least the coming year.


Lars Henriksson


Foreign Exchange

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