The pound (GBP) is under pressure as we start 2020 and has continued to be even as we move towards the end of the month. The negative impact on the sterling has stoked market expectations of an interest rate cut at the end of the month
20 January, 2020 – HYCM – Last week, on Wednesday precisely, the UK inflation levels dropped. Usually, if inflation is lower than expected, this can result in a central bank looking to cut interest rates to stimulate the economy. This factor has caused the GBP exchange to drop against a number of different currencies including the euro. Having this in mind, will the Bank of England (BoE) cut interest rate this month?
Related: How Will the BOE Rate Cut Impact GBPUSD?
BoE interest rates cut may be coming for 2 reasons
As we have mentioned, the GBP has been under pressure from a weak data point of view. As a result, the members of the Bank of England are bearish on their outlook. This, of course, has given me two reasons why the BoE will likely slash rates this month.
First of all, we had a string of warnings from the BoE members. Broadbent, Carney, Tenreyo, Vlieghe, and Saunders. These guys were all sounding the alarm bell in favour of weaker interest rates coming for the UK. Now, at the last BoE meeting, there were only two bank members voting for cuts. That number has risen. Also, the odds of a rate cut at the January 30th rate meeting are now greater than 70%.
Secondly, the weak data points I alluded to earlier have made a rate cut much more likely. Month on month GDP was down last week to -0.3% vs 0.0% expected. Month on month manufacturing was down in January to -1.7% vs -0.3% expected. Inflation data last week was a bad miss too with 1.3% printed vs an expectation of 1.5%.
The bad retail sales miss of -0.6% was the final blow in my view. This puts a rate cut front and centre for the BoE. This retail sales point included Black Friday sales and historically this retail sales point, at this point of the year beats expectations. However, this year it missed them.
UK consumer is cautious over Brexit concerns
This is a very poor signal and acknowledgment that the UK consumer is cautious over Brexit concerns. Pounds are being kept in wallets and purses as Brexit uncertainty impacts UK consumer spending. The key issue here is whether the BoE will cut and signal further rates cut for 2020 at the January 30th meeting.
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