Two Bank of England members surprise by voting for rate cut

Two Bank of England members surprise by voting for rate cut

Michael Saunders and Jonathan Haskel wanted to lower the benchmark by a quarter point - the first votes for looser policy since 2016 - citing threats to the outlook and signs of a turn in the labor market. However, there were two members of the MPC that voted to cut rates.

The Bank's view was that Johnson's deal reduced the likelihood of a "no deal" Brexit (in the near term) alleviating some of the uncertainty facing households and businesses. "If that does not happen, then we may need to lower interest rates to support [Britain's] growth and ensure that we return inflation to our 2 percent target sustainably".

"The message from the BoE is pointing to the downside for sterling", said Neil Jones, head of hedge fund currency sales at Mizuho bank in London.

"Although the global outlook had deteriorated further, recent United Kingdom economic data had not, on the whole, surprised to the downside".

This will be followed by the post-meeting press conference, where the BoE Governor Mark Carney will explain the QIR and answer questions.

If US officials refuse to agree with China on rolling back more tariffs without further concessions from China, or if officials take more combative tones again, hopes for an imminent trade deal will slump and the US Dollar could shed much of its recent gains.

For the others, Britain's economy had not performed much differently than they had expected three months ago but they showed a new openness to cutting rates if things soured.

While the central bank met predictions by opting to make no changes to the current monetary policy, two policymakers surprised markets by voting for a rate cut.

The BoE now assumes Britain will strike a trade deal that leads to new customs checks and puts up barriers to exports of financial and legal services.

The figure for 2019 was bumped up to 1.4 per cent from the previous forecast of 1.3 per cent.

But over the next couple of years, the BoE still sees growth picking up from 1.4% this year to 2.0% in 2022.

However, Mr Carney said that the Prime Minister's new Brexit deal has helped to reduce some uncertainty and said that business investment could pick up.

GBP/AUD was nearly on track to have lost around a cent and a half as it touched on a three week low of 1.8550 overnight, but after hitting those lows the pair has been recovering.

Earlier yesterday, Britain's Conservative government cancelled a planned release of its own updated economic forecasts just one hour before publication had been due.

A hung parliament outcome at the December 12 election could also boost the possibility of a rate cut early next year, In that scenario UBS Wealth Management sees a 25 bps rate cut by May.

Prime Minister Boris Johnson hopes his Conservative Party can muster a majority to push through his withdrawal agreement with the European Union to facilitate an exit at the end of January.

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