Investment Clock insights

Bank of England could move policy either way


Ian Kernohan

3 November 2016

With UK economic data, including the latest Purchasing Managers’ Indices, continuing to surprise on the upside, the Bank of England kept interest rates on hold today as we expected.  However, of much greater interest was the message from the latest Inflation Report, and in particular whether the door to another rate cut remains open.  
The Bank has replaced guidance that rates were quite likely to be cut further, with a comment that monetary policy can respond in either direction to changes in the economic outlook.  
In a sense, this is just a statement of the obvious, given that the economic outlook is always uncertain, but it is perhaps more hawkish than expected, especially since the August Inflation Report appeared to imply another rate cut.  
We agree with their assessment that GDP growth is likely to slow next year, on the back of a squeeze in real household incomes and ongoing Brexit uncertainty.

With UK economic data, including the latest Purchasing Managers’ Indices, continuing to surprise on the upside, the Bank of England kept interest rates on hold today as we expected.  However, of much greater interest was the message from the latest Inflation Report, and in particular whether the door to another rate cut remains open.  

The Bank has replaced guidance that rates were quite likely to be cut further, with a comment that monetary policy can respond in either direction to changes in the economic outlook.  

In a sense, this is just a statement of the obvious, given that the economic outlook is always uncertain, but it is perhaps more hawkish than expected, especially since the August Inflation Report appeared to imply another rate cut.  

We agree with their assessment that GDP growth is likely to slow next year, on the back of a squeeze in real household incomes and ongoing Brexit uncertainty.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.