Following the Bank of England’s dovish policy signal earlier in the month, the central bank is now expected to lower the Bank Rate by 25 basis points to 0.50 percent during its next ‘big’ meeting in January 2020, said Danske Bank in a research report.
The above projection is not dependent on the election outcome, although a cut is believed to be more likely in the event of a hung parliament than otherwise. The market expects a 33 percent possibility of a cut in January.
“We believe it is a close call whether there will be another rate cut in the second half of 2020 but this is not yet our base case. Whether or not a cut will come depends on Brexit and whether we are heading for a permanent US-China trade deal ahead of the US presidential election in November 2020 (50 percent probability of this happening)”, stated Danske Bank.
Meanwhile, private consumption continues to grow at a decent rate and real wage growth is strong. Nevertheless, recently, there have been some concerns regarding the development in the labor market. In spite of Brexit uncertainty and the investment recession, firms have continued to hire people, until now.
The latest two jobs reports indicated falling employment and weak indicators imply that this trend might continue. If this is the start of a new trend, this might begin a negative downward spiral, which might lead to a more severe deceleration of the economic growth.
“In this case, we believe the Bank of England would be likely to cut the Bank Rate more quickly, down to 0 percent, and probably restart QE”, added Danske Bank.
