Investment Clock insights

BoE sensitive to any economic slowdown next year

Ian Kernohan

15 December 2016

The Bank of England (BoE) was not expected to change policy at today's meeting, and their statement suggests that the balance of arguments favours keeping policy unchanged for the foreseeable future.  They note that the forward-looking components of business surveys are weaker than those for current output levels, suggesting a slowdown in 2017.  Also, with trade weighted sterling moving higher since their last meeting, this would result in a slightly lower path for inflation than they had envisaged.

The Monetary Policy Committee (MPC) will remain sensitive to any slowdown in economic activity next year, with real income growth squeezed by rising inflation and Brexit uncertainty impacting corporate investment plans.  In my view, the balance of probability still favours another small rate reduction next year, and with the US Federal Reserve hiking rates, this will continue to put downward pressure on sterling against the dollar.

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.

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