Bank of England Rate Decision

November 12, 2019

The Bank of England’s (BOE) monetary policy committee voted to maintain interest rates at 0.75% last week. The decision was expected by the market; however, the revelation that two of the committee members voted for a cut signalled to the market that there might be a reduction in rates on the cards at future meetings. The weak economy, low inflation and continuing political uncertainty concerned policymakers, although the majority remained keen to keep their powder dry until after Brexit. With interest rates being cut and monetary policy loosened by most major central banks, the balance of probabilities is to the downside at future meetings, and the market continues to price in a rate cut next year, although expectations for more than one have moderated over the last month.

US-China Trade War Deal

Markets were buoyed last week on the prospect of an interim agreement between the US and Chinese to de-escalate the ongoing trade war between the two countries. The likely winding back of some of the recent tariffs placed on the US and Chinese trade may lead to a spurt of activity as companies take advantage. However, most observers are not convinced that any deal will be long-lived, as many of the key issues are outstanding. Concerns around intellectual property and company access to Chinese markets are unlikely to be resolved, and even if included in this initial deal, the Americans will want to ensure that they are adequately implemented before easing the pressure.

Election Promises 

With official campaigns launched, the major parties attempted to outspend each other last week. The Labour party outlined plans to spend £400bn on investment, eclipsing the Conservatives promise to raise government investment to 3% of GDP from the current 1.8%. The spending plans indicate that government spending and borrowing are likely to increase significantly. While some asset managers have cautioned against the prospect of an increased supply of Gilts, the current thirst for income in a world where many bonds have negative yields means it is unlikely that the new government would be unable to find buyers. With the cost of debt now so low it makes sense to many that a government should seize the opportunity to borrow and invest, within moderation.

Market Data

  % 1w* % 1m*
UK 0.87% 3.31%
US 2.13% 2.20%
Europe ex UK 1.57% 2.62%
Japan 2.46% 0.62%
Emerging Markets 2.73% 2.39%
Oil 2.59% 3.42%
Gold -2.01% -7.00%