UK monetary policy outlook Andrew Goodwin Chief UK Economist - PowerPoint PPT Presentation

UK monetary policy outlook Andrew Goodwin Chief UK Economist agoodwin@oxfordeconomics.com Ian McCafferty Senior Adviser 5 February 2020

Markets saw last week’s decision as a close call Questions: events@oxfordeconomics.com 2

Why do we not expect the MPC to cut Bank Rate? • ‘Hard’ data for late -2019 was dampened by temporary factors which should unwind in early-2020 • Recent ‘soft’ data has been better (though still weak in a longer-term context) Questions: events@oxfordeconomics.com 3

PMI has moved out of rate cutting territory Questions: events@oxfordeconomics.com 4

Why do we not expect the MPC to cut Bank Rate? • ‘Hard’ data for late -2019 was dampened by temporary factors which should unwind in early-2020 • Recent ‘soft’ data has been better (though still weak in a longer-term context) • MPC’s very weak forecast sets a high bar to a rate cut Questions: events@oxfordeconomics.com 5

The MPC has become very gloomy about growth Questions: events@oxfordeconomics.com 6

Why do we not expect the MPC to cut Bank Rate? • ‘Hard’ data for late -2019 was dampened by temporary factors which should unwind in early-2020 • Recent ‘soft’ data has been better (though still weak in a longer-term context) • MPC’s very weak forecast sets a high bar to a rate cut • Risks around Brexit and global growth have eased (though Coronavirus poses a new source of risk) Questions: events@oxfordeconomics.com 7

Despite repricing, we still see lower chance of a cut Questions: events@oxfordeconomics.com 8

Why do we not expect the MPC to cut Bank Rate? • ‘Hard’ data for late -2019 was dampened by temporary factors which should unwind in early-2020 • Recent ‘soft’ data has been better (though still weak in a longer-term context) • MPC’s very weak forecast sets a high bar to a rate cut • Risks around Brexit and global growth have eased (though Coronavirus poses a new source of risk) • Monetary policy lags mean benefits of cutting rates will not be seen until after the fiscal boost has already kicked in Questions: events@oxfordeconomics.com 9

What's in new BoE boss Andrew Bailey's in-tray? • Current policy stance and forecast. Should the MPC cut Bank Rate? Is the MPC too gloomy about potential supply and the risk of escalating domestic inflation? • What does the BoE have in its toolkit to tackle the next downturn? • If such a downturn doesn’t happen, how should the BoE go about running down its balance sheet? • Can the MPC improve its communications? Trade-off between innovative thinking and communicating a clear message • Post-Brexit financial regulation – maintaining the attractiveness of City without raising financial stability risks Questions: events@oxfordeconomics.com 10

Questions? events@oxfordeconomics.com Further reading: MPC fails to offer a clear steer on interest rates: https://www.oxfordeconomics.com/my-oxford/publications/535939 What's in new BoE boss Bailey's in-tray? https://www.oxfordeconomics.com/my-oxford/publications/530001 Seat belts fastened for Brexit part two: https://www.oxfordeconomics.com/my-oxford/publications/532537