Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Weaker Inflation Joins Brexit Fog as Cause for BOE Rate Caution

Published 16/01/2019, 11:26 pm
Updated 17/01/2019, 01:24 am
© Reuters.  Weaker Inflation Joins Brexit Fog as Cause for BOE Rate Caution

© Reuters. Weaker Inflation Joins Brexit Fog as Cause for BOE Rate Caution

(Bloomberg) -- Bank of England Governor Mark Carney’s list of reasons to move slowly on raising interest rates is getting longer.

As Brexit chaos continues to tie his hands in the short term, a report Wednesday showed inflation has slowed to close to their 2 percent target. Price growth in the final quarter of 2018 was about 0.2 percentage point lower than policy makers forecast in November.

The BOE will update its forecasts at its Inflation Report on Feb. 7. After Prime Minister Theresa May’s Brexit deal suffered a landslide defeat on Tuesday, there’s no guarantee that the U.K. will have a fresh strategy -- or even a government -- at that point.

“There is still a case for gradual and limited rate rises, but Brexit puts that on hold for the time being,” said Victoria Clarke, an economist at Investec. “We penciled in February but now we think that there won’t be the certainty by that point. Assuming that something does get cobbled together ahead of the May BOE meeting, we have a May hike in.”

While the prime minister is expected to survive a no confidence vote on Wednesday, the next steps in the Brexit process are unclear, and there’s still the prospect of a no-deal exit that the BOE says will cause severe damage.

Speaking in Parliament on Wednesday, Carney said the BOE is in discussions with the U.K. Treasury about the powers it needs to smooth any financial ructions if the country leaves without a new arrangement in place.

He added that a rebound in the pound following the defeat of May’s bill seems to reflect views that the prospect of a no-deal departure has diminished, but cautioned against putting too much weight on short-term fluctuations.

Against such a backdrop, investors are increasingly pessimistic about the prospects for future BOE action, and aren’t fully-pricing in a hike until early 2020. Still, the outlook for interest rates, and inflation, could change quickly once the final Brexit outcome becomes known.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.