The Bank of England (BoE) is expected to ignore macro trends and maintain guidance for a higher level gradually as long as Brexit has not been clarified, according to a recent research report from DNB Markets.
Cyclical macro images continue to soften, especially for the manufacturing and construction sectors. The much larger service sector seems to have been stable for now. Manufacturing is likely to continue to be hampered by the weak fundamentals in the Euro zone and ongoing trade war between the US and China.
The construction sector can further slow down because real estate investments are likely to be dragged on by the continuing uncertainty of Brexit. While deteriorating prospects can strengthen monetary easing, inflation close to the target and marked increase in wage growth lead to higher interest rates.
Therefore, it makes sense for BoE to maintain a cautious tightening bias, indicating the need for a slightly higher level. As the view depends heavily on Brexit results (i.e. soft, hard or not Brexit), it seems prudent to refrain from new signals until there is further clarification, the report adds.
In last year's material, the Bank's level was increased from 0.50% to 0.75% and BoE has since shown that future upgrades are "likely to be at a gradual pace and a limited draw ". In addition, BoE said the political response to the Brexit outcome could be "in two directions."
With the prospect of Brexit still unable to be defied, there is a reasonable that these guidelines will remain unchanged at this meeting. At this point, the market is priced in virtually no movement at the Bank level until January next year, when it is set at a probability of 72 percent of the 25bp reduction.
"We estimate the rate of 50bp cuts in November based on Brexit No-Deal which will take place on October 31st. This now seems unlikely because the majority in Parliament chooses to support the law that prevents such results. In terms of Brexit software on October 31st or delays through January, bank rates may remain unchanged until next year, "DNB Market said in the report.
In last year's material, the Bank's level was increased from 0.50% to 0.75% and BoE has since shown that future upgrades are "likely to be at a gradual pace and a limited draw ". In addition, BoE said the political response to the Brexit outcome could be "in two directions."
With the prospect of Brexit still unable to be defied, there is a reasonable that these guidelines will remain unchanged at this meeting. At this point, the market is priced in virtually no movement at the Bank level until January next year, when it is set at a probability of 72 percent of the 25bp reduction.
"We estimate the rate of 50bp cuts in November based on Brexit No-Deal which will take place on October 31st. This now seems unlikely because the majority in Parliament chooses to support the law that prevents such results. In terms of Brexit software on October 31st or delays through January, bank rates may remain unchanged until next year, "DNB Market said in the report.
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1 Komentar untuk "BoE clarification about BREXIT"
Good news,thanks fpr the information