Home Financials ‘Boris Bounce’ Keeps UK Interest Rates Held Steady

‘Boris Bounce’ Keeps UK Interest Rates Held Steady


The Bank of England held interest rates at 0.75 per cent on Thursday, citing indications that Britain’s economy had improved since the December general election – the so-called “Boris Bounce” – combined with signs that the global economy is stabilising meant that further stimulus was not needed.

The markets had priced in a cut in interest rates at 50 per cent before governor Mark Carney’s last Monetary Policy Committee (MPC) meeting, but the vote was split once again 7-2 in favour of holding rates steady, with external members Michael Saunders and Jonathan Haskel voting to lower rates.

The Bank did, however, suggest that it would be open to the idea of lowering interest rates should the recent economic upturn slow down:

“In 2019, the UK economy slowed because firms’ uncertainties about Brexit reduced their spending, and growth in the world economy slowed.  UK inflation fell back below our 2 per cent target.

“The latest data suggest that the uncertainty facing businesses has fallen, and that global growth has stabilised.  We expect uncertainty to fall further and global growth to pick up.  If that happens, it should help to support growth here in the UK.

“If that does not happen, then we may need to lower interest rates to support UK growth and ensure that we return inflation to our 2 per cent target sustainably.”

Markets responded accordingly to the news, with sterling jumping by around half a cent against the dollar, and interest rate futures remaining geared towards the central bank cutting interest rates soon, probably in May when Carney’s successor Andrew Bailey, outgoing chief of the Financial Conduct Authority (FCA), takes over.

The Bank also cut its growth forecasts for the UK economy over the next three years, cutting 2020’s estimate down to 0.8 per cent from 1.2 per cent, 2021’s estimate down to 1.4 per cent from 1.8 per cent, and in 2022, the Bank only predicts growth of 1.7 per cent, down from 2.0 per cent.  That represents average growth of 1.1 per cent over the next three years, less than half of chancellor of the Exchequer Sajid Javid’s ambition to boost growth towards 2.8 per cent.

If the MPC’s prediction is correct, it will be much harder for the government to raise living standards, keep the public finances healthy and “level up” the UK’s underperforming regions, said the Financial Times.

Nick Wall, co-manager of the Merian Strategic Absolute Return Bond Fund at Merian Global Investors, told The Guardian:

“Bank of England governor Mark Carney brought an end to his reign by holding interest rates at 0.75 per cent after business surveys picked up post-election.  To his critics, he proved unreliable to the end, but in our view this seems like the correct decision, particularly with the upcoming spending review.

“Historians perusing the Bank of England’s base rate during Carney’s tenure as governor may conclude it was a dull affair.  His Monetary Policy Committee tweaked interest rates three times over the course of 69 meetings.  Traditional measures of central bank activity, however, as Carney acknowledged in his final speech this month, have fallen by the wayside as conventional policy tools find it harder to boost inflation than to contain it.”

Mr Carney also said that the Bank is monitoring the coronavirus outbreak “quite closely”, although it’s “very early days”.

30th January 2020.