The effect of U.K. inflation from lower fiscal stimulus and increased uncertainty regarding Brexit might be neutral at the first order, with lower domestic demand countering slower exchange rate appreciation, noted Barclays in a research report.
The Bank of England is expected to stand pat at 0.75 percent through 2020, according to Barclays. Nevertheless, given that that the U.K. economy is expected to record below-trend growth and below-target inflation for much of the forecast horizon, there are significant risks of a BoE rate cut in January or May 2020.
“We look forward to the MPC signalling their intention in the 19 December meeting. If the Conservatives win a majority, and assuming our analysis is correct, we expect this meeting to make clear that from here every MPC meeting would be "live" in the sense that a rate decision could be taken without specific signalling”, stated Barclays.
Another member is likely to join the two MPC dissenters already voting for a cut. For the 30 January Monetary Policy Report update, the central bank is expected to be in a good position to take a decision as it will then have two months of fourth quarter activity as well as January flash PMIs.
