Bank of England Policymakers Shift Mood…

GBP

Two Bank of England officials unexpectedly voted to lower interest rates on Thursday to ward off an economic slowdown, and others including Governor Mark Carney said they would consider a cut if global and Brexit headwinds do not ease.

Carney said the BoE’s central scenario was that a slowdown in global growth would stabilize and that Prime Minister Boris Johnson’s Brexit deal — which parliament has yet to approve — pointed the way to a reduction in Brexit uncertainty.

For Monetary Policy Committee members Michael Saunders and Jonathan Haskel, it was already time to act. They cast their first votes for a rate cut since shortly after the 2016 Brexit referendum. Saunders and Haskel noted reduced job vacancies that suggested Britain’s hitherto strong labor market was weakening as well as risks from the world economy and Brexit. Other MPC members showed a new openness to cutting rates if things soured. They also softened their language on the need for limited and gradual rate hikes in the medium term, saying they “might” rather than “would” be necessary.

The BoE now assumes Britain will strike a trade deal that leads to new customs checks and puts up barriers to exports of financial and legal services. The growth forecast would have been weaker still without higher spending announced by the government in September which the BoE said would add 0.4% to the economy.

Inflation, currently 1.7%, is forecast to drop to 1.2% in the middle of next year due to lower oil prices and regulatory caps on electricity and water bills. However, over the next couple of years, the BoE sees economic growth picking up from 1.4% in 2019 to 2.0% in 2022. The 2022 growth rate is above Britain’s long-term trend and would push inflation back above the BoE’s 2% goal, the central bank said.

USD

The dollar gained against the safe-haven yen and Swiss franc on Thursday, bolstered by comments from a Chinese commerce ministry official that suggested the world’s two largest economies are inching closer to a trade deal.

The Chinese official said on Thursday that Beijing and Washington have agreed to cancel in phases the tariffs imposed during their months-long trade war, but specified no timetable.

The proportion of tariffs cancelled for both sides to reach a “phase one” deal must be the same, but the number to be cancelled can be negotiated, he said.

Hopes for a trade deal had been waning after a senior official of the Trump administration on Wednesday said a meeting to sign the deal could be delayed until December and that a venue had not yet been agreed.

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