BOE stays on hold

In the event, yesterday’s eagerly awaited BOE monetary policy decision saw no change in UK interest rates with members voting 7-2 to stay on hold at 0.75%. The BOE put weight on the latest business and consumer surveys which point to a post-general election reduction in uncertainty and an improvement in confidence, although it did say that it would now be watching to see if this is translated into more positive hard economic data. If so, the BOE may well remain on hold; if not, it may cut rates to support the economy. For its part, the market – which had the chances of a cut yesterday at about 50-50 immediately ahead of the decision- is pricing in a full 25bps reduction by the end of this year

Sterling popped higher following the BOE decision and has since extended these gains to trade at 84p against the euro and at over $1.31 against the dollar. The latter is a touch softer against the single currency, as US stocks rallied into the New York close after the World Health Organisation, while declaring the coronavirus a global health emergency, said travel and trade restrictions were not necessary. Core bond yields have also moved up in response to this (with US 10-year yields edging towards 1.60%)

The European Commission’s Economic Sentiment Indicator (ESI) for the Euro Area increased for a third month in a row in January and is consistent with at least continued stable if not some modest pick-up in the pace of economic growth  in the zone.  Also, the unemployment rate fell further in December – to 7.4% – and has continued to decline steadily over the past couple of years – by 1.2% points since December 2017 –  even as GDP growth has slowed over this period

The US economy expanded by 0.5% quarter-on-quarter in the fourth and final quarter of last year (the same as the Q3 outturn) and rose by 2.3% year-on-year. For 2019 as a whole GDP growth averaged 2.3%, down from 2.9% in 2018

Data scheduled for today includes GDP (Q4 2019) and inflation (January) in the Euro Area; consumer confidence (January) in the UK; and PCE inflation (December) and consumer confidence (January) in the US