UK: Downside risk to rates this year – Rabobank

According to analysts at Rabobank, comments from the BoE’s Vlieghe over the weekend suggesting that he would vote for a rate cut as early as January 30 if domestic economic data weakens, highlights the downside risk to UK rates this year.

Key Quotes

“Last week, comments from BoE’s Governor Carney were also viewed as dovish as were remarks from Tenreyro. Currently UK GDP growth is below trend and CPI inflation is below the Bank’s inflation target. Any sign that talks between the UK and EU on their future arrangements are not smooth would increase downside risks to the UK economy.”

“Yesterday, Irish Deputy PM Coveney was the latest EU official to suggest that these talks are “probably going to take longer than a year”. Given PM Johnson’s refusal to extend the transition phase beyond the end of 2020, the risk of a disorderly Brexit remains in play. GBP/USD has pushed below the 1.30 level this morning. This compares with a post-election high around 1.35. On a more positive note, power-shared was restored in N. Ireland over the weekend after three years of deadlock.”