Graeme Wearden 

Bank of England holds UK interest rates; US misses Trump’s growth target — as it happened

Mark Carney holds press conference after setting UK interest rates for the last time before he leaves in March
  
  

Watch the Bank of England’s press conference on interest rates

Finally, the FTSE 100 has ended another bad day deep in the red.

The blue-chip index shed 101 points, or 1.36%, to end at 7,381. Coronavirus worries were a key factor, while the stronger pound hurt exporters.

Greg Daco of Oxford Economics has spotted that a sharp slide in US imports actually flattered today’s growth figures:

Afternoon summary

Time for a summary:

The Bank of England has left UK interest rates on hold, at Mark Carney’s final meeting as governor. Only two policymakers voted for a cut, surprising the City which expected a closer results.

The Bank also cut its growth forecasts, and downgraded its expectations for productivity growth, in a sign that the UK economy has suffered from Brexit uncertainty.

Carney, who said he had no regrets about his time at the Bank, told reporters that Britain faces a decade of perhaps profound change.

He also said the Bank was watching the coronavirus crisis slowly, given its possible impact on the global economy.

Fabrice Montagne, chief UK economist at Barclays says Carney may have left his successor, Andrew Bailey, a conundrum:

“There’s a real risk that falling oil prices push inflation below 1% and the new governor will then have to explain why the BoE is missing its inflation target.

Against that backdrop, a rate cut today would have made it easier for incoming governor Bailey to ease into office.”

In other news...

The US economy has fallen short of Donald Trump’s promises, again. US GDP only expanded by 2.3% during 2019, below the White House’s goal of 3%.

In the fourth quarter alone, the US grew by 2.1% with consumer spending slowing and business investment dropping again.

Global stock markets have been hit by renewed worries about the coronavirus, as firms continue to shutter shops and factories. In the last few minutes, BMW has announced its factories will stay closed until 8 February.

Carnival, the cruise operator, fell 8% at one stage following reports that two passengers are in isolation on a ship on the coast of Italy - leaving 6,000 people trapped on board.

The US stock market has opened in the red, following the losses in Europe already today.

The latest jump in the death toll from coronavirus is alarming investors, as it could mean the global economy is more badly affected (quite apart from the human suffering).

The Dow Jones industrial average has dipped by 0.2%, with the broader S&P 500 down 0.4%. Facebook is among the big fallers, down almost 6% after posting slowing revenue growth last night.

Eurpoe is taking a bigger hit than Wall Street, with the FTSE 100 down almost one hundred points (-1.3%), Germany’s DAX down 1% and France’s CAC losing 1.3%.

Chris Towner, director at risk management firm JCRA, says the crisis is dampening hopes for an economic revival this year:

“The acceleration in the spread of the virus across the globe along with the increase in the number of deaths, continues to alarm financial markets. Stock markets continue to trade under pressure and so is the Chinese renminbi.

The offshore traded Chinese currency has weakened to test the psychological ‘seven’ level against the US dollar. To put this into perspective, since the coronavirus hit just ten days ago the Chinese currency has weakened just over 2%.

Chad Moutray, chief economist at the National Association of Manufacturers, fears that America’s economy will keep slowing in 2020, having only managed 2.3% growth in 2019.

Economists are a little disappointed that America’s growth rate slowed last year - here’s some snap reaction:

US growth rate misses Trump's targets.

Newsflash: America’s economy has posted its weakest growth since Donald Trump became president.

US GDP only grew by 2.3% during 2019, the Commerce Department says, shy of the 3% growth which Trump targeted. That’s down from 2.9% in 2018.

Such a lacklustre performance grates when you remember Trump’s bragging at Davos last week, about America enjoying “an economic boom - the likes of which the world has never see before”.

The figures also show that in the fourth-quarter, US GDP only expanded by an annualised rate of 2.1%.

Business investment fell during the quarter (by -1.5%), while consumer spending growth slowed to +1.8% (from 3.2%)

Mark Carney’s final press conference didn’t contain many fireworks. Instead, today will be remembered for the uncertainty and trepidation in the City about whether the Bank would cut rates or not.

That’s not the sign of a smooth-running central bank -- policymakers shouldn’t create such confusion ahead of a monetary policy meeting, especially one the day before Brexit.

Its no way to shake off Carney’s reputation as an ‘unreliable boyfriend’.

As Nick Wall, co-manager of the Merian Strategic Absolute Return Bond Fund at Merian Global Investors, puts it:

Bank of England Governor Mark Carney brought an end to his reign by holding interest rates at 0.75% 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 (BoE’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.

Mark Carney then wraps up his final press conference as Bank of England governor, saying the economics press pack that he’s “appreciated your challenge and insights” over the years (he’s hidden that appreciation well at times...)

He tells the reporters they have a tough job, in a 24-hour news cycle, without unlimited budgets (true, that....)

You come here, we lock you in our vault, we give you bacon sandwiches of uncertain vintage...

...No you don’t! the press mutter, pointing out that they might get biscuits on a good day.

But putting the butties aside, Carney seems genuinely sincere about the challenge of covering complicated economic issues for the UK audience. And with that, he’s off.

Q: What impact have your new climate stress tests had?

Carney says that the feedback is ongoing, and that major banks and insurers are “very engaged” with these new stress tests.

The tests aren’t meant to catch firms out, he adds, they’re meant to help set strategy to a low-carbon economy.

Q: When you say it’s ‘so far, good enough’, do you mean that any weak data could prompt a rate cut?

That’s a question for the March meeting of the MPC, Carney replies -- when he’ll have left.

The MPC will also look at Sajid Javid’s budget, and any progress on Brexit negotiations, when setting interest rates.

Also on Brexit, Carney warns that European companies and pension funds would face higher costs if UK-based financial companies lose their equivalence status with the EU.

In other words, Europe could suffer if there is too much divergence between London’s financial centre and the EU after Brexit.

Q: What impact will Brexit have on UK productivity?

Deputy governor Ben Broadbent says the Bank now doesn’t expect much of a pick-up in productivity growth - it’s now forecast to rise by just 0.5% per year (compared to 1.5% to 2% in the past).

Q: What has been your biggest regret, or monetary policy mistake, of your time at the Bank, asks my colleague Larry Elliott?

Carney has a think.... and concludes he doesn’t have any regrets on monetary policy.

Carney: We're watching coronavirus closely

Q: Is the coronavirus the biggest risk to the global economy?

Mark Carney replies that the virus is affecting a number of people. We should acknowledge the difficulties and the pain of those directly affected, and the anxiety of hundreds of millions of people whose lives are disrupted, he points out.

The crisis is taking place in the world’s largest economy, and spreading beyond it. But it’s very early days, the governor continues:

We, like others, are monitoring this quite closely, as you’d expect.”

Carney won’t speculate on the possible impact on the economy, but adds that the Bank is looking “very closely” at this “fast-moving issue”.

Q: When you arrived in 2013, bank rate was 0.5%. It’s now only 0.75%...

<50% higher, Carney mutters proudly>...

...if you’d been told that at the time, would you be surprised?

Carney says he wouldn’t have expected equilibrium rates to be so low today.

Britain’s r* rate (short-term interest rate which should occur when the economy is at equilibrium with inflation low and employment high) is lower than the global average, he adds.

Carney then suggests there could be new fiscal measures in the March budget. That could lift equilibrium rates, as could a drop in Brexit uncertainty.

Carney: Raising UK growth potential is long-term challenge

Q: What do you think of chancellor Sajid Javid’s comments about raising UK growth rates, given you have cut your forecasts?

Carney says he welcomes Javid’s focus on the issue (!) given the concerns over Britain’s growth potential.

Large structural changes may be needed to get Britain’s supply growth up, he adds. But it can’t happen overnight, it needs substantial investments and policy changes.

It’s a common issue. We’re just calling it as we see it at present.

The government and chancellor’s efforts to raise the speed limit of the UK economy should be judged on long-term basis, not a two or three-year cycle, Carney adds.

Q: Why have you dropped your guidance of “limited and gradual” rises in interest rates in favour of “some modest tightening” being needed, as your forecast suggest inflation only hits target if you cut rates?

Carney replies that a rate cut would push inflation over target -- so not consistent with the Bank’s goals.

But ‘limited and gradual’ implied multiple rate rises, and that’s not expected, Carney add.

Q: Markets were convinced that today’s meeting would see rates cut - but actually you’re talking about tightening policy.

Given that, would you recommend that your successor uses forward guidance on interest rates?

Carney insists that forward guidance (pledging not to move interest rates until certain conditions are met) are a key part of the armory. “The jury is in” that they work, he insists.

[The problem, though, is that the Bank kept promising to raise interest rates in a steady, gradual way, but has barely lifted borrowing costs since the financial crisis].

Carney then denies that the City were misled or confused -- 50% of participants may have expected a cut, but 50% didn’t. That’s now markets work, he explains....

Updated

Q: The Bank has lowered its assessment of the UK’s growth potential, so what’s gone wrong and is it partly the Bank’s fault?

The answer to the second part is “no”, Carney replies smoothly (do central bankers ever admit mistakes?!).

Deputy governor Ben Broadbent explains that the Bank has lowered its expectations for labour supply, and for productivity.

Carney adds that the Bank’s forecasts assume an orderly move to a new free-trade agreement with the European Union, with divergence between the UK and EU happening over time.

Carney: Brexit uncertainty and cliff-edges have hurt economy

Q: The Bank of England has cut its assessment of Britain’s supply growth today, so does that mean the economy is weaker since the Brexit vote?

Mark Carney says there are three factors:

1) The Bank has been disappointed by the persistent failure of productivity to increase over several years, so has adjusted its forecasts accordingly

2) Business investment has been very weak since the Brexit vote -- spending less on new equipment and processes. Instead of expanding their businesses, they’ve been focused on contingency planning to survive various Brexit cliff-edges.

There’s now “some payback” from that in the Bank’s new forecasts, Carney says.

3) The Bank’s forecasts now factor in Boris Johnson’s Brexit deal - and assume an “immediate move” to a deep free-trade deal with the EU in a year’s time [rather than a slower transition].

Carney: A decade of profound change looms

Looking ahead, Mark Carney warns that the UK is entering a decade of “potentially profound structural change”.

New trading relationships will be struck, new immigration rules will be set, major initiatives on infrastructure and regional development will be introduced.... plus there’s the shift to a low-carbon economy.

Updated

The discovery of a new strain of coronavirus in China is a reminder of the need to remain vigilant, Mark Carney continues.

(Yesterday, US central bank chief Jerome Powell predicted that coronavirus would have an impact on the global economy, as well as China’s)

Carney: Activity has picked up sharply since election

Indicators of uncertainty in the UK have fallen, Mark Carney continues, citing surveys showing that firms are less worried about Brexit.

The latest hard data, covering the time before December, shows the economy is weak. But the more timely (but softer) survey data measuring activity after the election have improved “sharply”.

So with the global economy also appearing to recover, the Bank was persuaded to leave interest rate on hold.

But Carney strikes a cautious note. This isn’t a case of “so far so good”, but actually “So far, good enough.” The hard economic data needs to back up the surveys.

Mark Carney gives press conference

Bank of England governor Mark Carney is giving a press conference at the central bank now.

He warns that the UK economy probably stagnated in the final quarter of 2019, while core inflation has also slowed.

So the question facing the MPC is whether the new decade will start with a bang.

Politics is certainly delivering - with Brexit taking place tomorrow night.

But the economic outlook is more modest, Carney warns.

Watch Mark Carney’s press conference here

Here’s our news story on the Bank’s decision:

The Bank suggests that the pick-up in manufacturing and service sector growth this month, and the easing of US-China trade tensions, both played a factor in today’s decision.

The minutes of the meeting say:

Since the December meeting, international developments had been positive and the most recent UK data supported the forecast of a near-term recovery in growth.

The Committee would monitor closely the extent to which these early indications of an improved outlook were sustained and followed through to the hard data on domestic activity in coming months.

That was enough to persuade governor Mark Carney, deputy governors Ben Broadbent, Jon Cunliffe, and Dave Ramsden, chief economist Andrew Haldane, and external members Silvana Tenreyro and Gertjan Vlieghe to vote to leave rates at 0.75%.

For the third month running, Saunders and Haskel disagreed -- pointing to downside risks from Brexit uncertainties and a weaker world outlook.

The pound has rallied against the US dollar following the Bank’s decision.

Sterling has gained almost half a cent to $1.3064. City traders are concluding that the BoE is less likely to cut interest rates in the coming months, as only two policymakers voted to cut rates today.

Some economists had expected a closer vote, perhaps 6-3 or even a 5-4 nail biter. There were even forecasts of a rate cut.

It appears that the Bank has taken heart from signs that activity is picking up this month, rather than fretting about data showing a slowdown at the end of 2019 [I outlined the various reasons for cutting or not cutting here]

The Bank of England is helpfully tweeting the key points from today’s Monetary Policy report (its quarterly healthcheck on the UK economy):

You can see the Bank’s latest Monetary Report here.

It explains that interest rates may need to be cut if growth doesn’t improve. But rates could rise “modestly” in future if the economy recovers and inflation picks up, the BoE adds.

BoE cuts growth forecasts

The Bank of England has also cut its growth forecasts for the UK economy.

It now expects GDP will only rise by 0.8% this year, down from 1.2% previously.

Growth in 2021 has been revised down too, to 1.4% from 1.8%. And in 2022, the Bank only predicts growth of 1.7%, down from 2.0%.

The Bank says that Brexit uncertainty hurt the UK economy last year - it is hoping that the global economy can help lift growth.

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% 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% target sustainably

BoE policymakers Michael Saunders and Jonathan Haskel continued to demand a cut to interest rates, but couldn’t persuade any of their other seven colleagues to join them.

BANK OF ENGLAND DECISION

NEWSFLASH: The Bank of England has left UK interest rates on hold.

Britain’s central bank has decided to leave Bank Rate at 0.75%, despite recent weak economic data.

The decision was not unanimous — 2 members of the monetary policy committee voted to cut rates, and 7 voted to leave them unchanged.

More to follow.

David Madden of CMC Markets says today’s Bank of England decision (in four minutes) is pretty exciting:

At previous meetings, policymakers Michael Saunders plus Jonathan Haskel voted for lowering rates. Gertjan Vlieghe has recently indicated he would be open to the idea of lowering rates too, so this meeting will be one of the more interesting ones in a while.

The meeting has the added excitement of being the last one for Mark Carney, the head of the BoE. The central banker has a reputation of behaving like an ‘unreliable boyfriend’, so he might try and shake off the image by voting to keep rates on hold – previously he has been content to keep the current policy. It would seem odd to cut rate ahead of the Budget, not to mention the Brexit situation.

Tension is building in the City, with just 15 minutes until the Bank of England sets UK interest rates.

Will policymakers cut borrowing costs to prop up the economy, or will they be heartened by recent signs that confidence and activity are picking up?

It’s a deliciously close call...and a gripping way for Mark Carney to end his time as governor.

Carnival shares slump on coronavirus report

Shares in Carnival, the international cruise operator, have slumped by 7% this morning following a report that a couple from Hong Kong are in solitary confinement on one of its ships docked off the Italian coast.

ANSA, the Italian news service, reports that the wife has a fever and is being tested by the authorities for coronavirus, and are mored at Civitavecchia.

The 6,000 passengers on board the Costa Smeralda (one of the world’s biggest cruise ships) are currently unable to get off.

According to ANSA, the couple had arrived from Hong Kong at Milan Malpensa airport on Saturday 25 January and then headed to Savona (in Northern Italy) where they boarded the ship for the cruise.

The mayor of Civitavecchia, Ernesto Tedesco, has said the situation is under “careful control”, and that all the necessary protocols are being followed.
Here’s the story:

My colleague Matt Weaver is tracking all the developments here:

Michael Mulligan, insolvency and restructuring partner at law firm, Shakespeare Martineau, is alarmed that UK personal insolvencies have spiked to their highest since 2010.

He believes it should temper optimism about a “Boris bounce”, and suggests the UK economy is still struggling -- something for the Bank of England to bear in mind.

Mulligan says:

In reality, growth continues to stagnate, and business and individuals are feeling the effects. There are thousands of zombie companies hanging on across a number of vulnerable sectors.

“Brexit uncertainty and trade wars have dominated the economic landscape, sapping opportunities for growth and pushing those who are struggling further under water. For bricks and mortar retail in particular, which is already threatened by rising online sales, the knives are out and the fight for customer spending continues.

“Individual insolvencies have risen to highest annual level since 2010, with the UK retaining its status as the country with the highest level of personal insolvency in the world. The total number of County Court Judgments (CCJs) issued against individuals in debt reached 1.15 million in 2019 – the highest on record.

“The availability of seemingly ‘cheap’ debt and short-term loans continues to be an issue and people are still being caught out by the temptation of accessible borrowing. January figures from the Bank of England show that UK households owe £72.5 billion on credit cards, a total increase of £400 million in November 2019 alone

UK personal insolvencies hit nine-year high

Worryingly, the number of personal insolvencies in the UK has hit its highest level since 2010, after the financial crisis.

The Insolvency Service has reported there were 122,181 personal insolvencies in 2019, an increase of 6% on 2018, and the highest annual total since 2010.

Alex Collinson of the TUC has tweeted the key points:

Duncan Swift, President of insolvency and restructuring trade body R3, says the rise in insolvencies is due to “a tough year for personal finances”.

“Individuals have benefited from low inflation, real wage increases, and record employment levels, but this has been counter-balanced by rising consumer debt and the fact that not all employment is secure. For the most financially vulnerable, the problems with the benefits system have been well-publicised.

“Finances are stretched for many, and financial resilience is low. It doesn’t take much of a shock – a missed benefit payment, an unexpected bill, or a reduction in hours – to cause financial problems. Real wages are rising, but having fallen for so long before that it’s a bit too late for some, while wage increases will not be evenly distributed.

“Banks and other lenders have continued to tighten their credit standards in response to the Bank of England’s concerns around consumer over-indebtedness, which means many people have lost a fall-back option they may have used in the past.

Updated

Christopher Dembik, Head of Macro Analysis at Saxo Bank, predicts that Mark Carney will leave interest rates on hold -- as the latest economic data has been encouraging.

Dembik writes:

We believe the BoE is data-dependent and will wait for more post-election data to come in before cutting interest rates. The latest data tend to confirm that the UK economy is rebounding in early 2020. January flash Purchasing Managers’ index readings were above consensus. Flash Service PMI was out at 52.9, flash Manufacturing PMI at 49.8 and flash Composite PMI at 52.4. Credit conditions have also improved significantly with availability of secured credit for households reaching the highest level since 2015. We still consider that the UK economy will need more stimulus in the coming months to offset the prolonged contraction in credit push and the five consecutive quarters of contraction in private investment but, as of now, the BoE is in no hurry to step in.

Another argument for postponing the rate cut is that it is the last meeting chaired by Governor Carney before Andrew Bailey takes over in March. It is likely that Carney will let Bailey make the call once more data will be available regarding the state of the UK economy in the post-Brexit era.

Consumer goods giant Unilever is in hot water this morning after putting its tea operations on the market.

CEO Alan Jope announced a “strategic review of our global tea business” this morning, as part of a drive to improve performance. Unilver also reported a 33% drop in pre-tax profits for 2019, amid a slowdown in South Asia and weaker trading in China.

Selling Unilever’s ‘black tea’ business may make sense - given the move among younger consumers towards fruit teas and more glamorous coffees.

But... Unilever denied that it was considering selling the tea business just two months ago, after our friends at the Telegraph reported it. Looks like Hannah Uttley was on the money. No wonder they’re, ahem, stewing this morning....

Updated

On balance, the City expects the Bank of England to leave interest rates on hold today with a 6-3 split on its monetary policy committee, Bloomberg’s Jill Ward reports:

Traders see about a 52% chance of a cut on Thursday, the most divided they’ve ever been this close to a decision under Carney. Bets climbed as high as 70% in the weeks before the announcement, before paring back in the last few days.

A Bloomberg survey of economists predicts five different results for the vote split among the nine policy makers. They lean toward a 6-3 vote to hold, with Michael Saunders and Jonathan Haskel repeating their calls for lower rates, and Gertjan Vlieghe joining the dissent.

Goldman Sachs, HSBC and Morgan Stanley are among the banks calling for no change, while Deutsche Bank, Barclays and Natwest predict a cut.

Rabobank, the Dutch financial services group, predicts the Bank of England will cut interest rates at noon today...

BT shares are also under the cosh this morning after reporting a 3% drop in revenues in the last quarter, and a 4% decline in core profits.

Traders are concerned that BT has predicted a £500m bill for replacing Huawei kit in its networks, to comply with the UK government’s new restrictions on the Chinese operator.

My colleague Mark Sweney has the details:

BT, which saw its share price fall 4% in early trading after reporting slightly worse than expected third quarter results, said that the £500m projection included assumptions on the costs getting equipment from alternate providers such as Nokia and Ericsson will be when deals are done.

“The way it works at the moment is when you put a 5G box on a mast it has to on top of a 4G box from the same supplier,” said Philip Jansen, the chief executive of BT.

“More than 35% of [our] 4G boxes are Huawei. We are going to have to take out some of Huawei 4G boxes and not use them again. That is probably the single biggest cost. In order to make 5G work we are going to have to use other manufacturers’ equipment.”

Profits have halved at Royal Dutch Shell after the energy giant was hit by sliding oil and gas prices.

The news has sent its shares to the bottom of the FTSE 100 leaderboard in early trading, to a two and a half-year low.

The Anglo-Dutch oil giant has posted profits of just $2.9bn for the final quarter of 2019, compared with $5.7bn a year before.

Profits for 2019 as a whole dropped to $16.5bn, down 23% from 2018, after a disappointing end to the year.

My colleague Jillian Ambrose explains:

The company blamed weaker oil and gas prices, which drifted down last year due to a well stocked global market and concerns over global economic growth which dampened demand for fossil fuels.

Ben Van Beurden, Shell’s chief executive, said the company faced “challenging macroeconomic conditions” in its petroleum refining and chemicals business, “as well as lower oil and gas prices” last year.

Shares in Shell are down 4% this morning at £20.44, their lowest since July 2017.

Updated

European stock markets have all fallen into the red in early trading, as the escalating coronavirus crisis hits stocks.

France’s CAC and Germany’s DAX have both fallen by over 1%, with the UK’s FTSE 100 currently 0.6% lower.

Connor Campbell of SpreadEx says:

With the coronavirus death toll leaping 29% overnight, the European markets reverted back to panic mode, quickly unravelling the rebound managed in the last couple of sessions.

The market’s fears weren’t helped by the Fed on Wednesday evening. As the central bank kept rates unchanged, while re-upping its commitment to 2% inflation, Jerome Powell refused to speculate on the full impact of the coronavirus, though he did acknowledge the potential for any economic disruption in China to spill over to the US.

Here’s our news blog on the latest developments:

The pound is looking a little jittery this morning, dropping below $1.30 as traders await the BoE decision at noon.

To cut, or not to cut?

There are several reasons why Bank of England policymakers may vote for an interest rate cut today for the first time since the Brexit vote.

For example:

But it’s not a clear call, as the most recent data paints a better picture:

Here’s a nice recap of Mark Carney’s time at the Bank of England, from CNBC:

Updated

Today’s Bank of England decision is on a “knife-edge”, says Neil Wilson of Market.com:

Recent comments from several policy makers at the Bank, some softer inflation data and GDP numbers, and persistent risks to the global outlook suggest the MPC may choose to act now to cut.

Introduction: Will Bank of England cut rates today?

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

After more than six years at the Bank of England, Mark Carney will today announce his final decision on interest rates. And it’s possibly the trickiest judgement faced by the governor yet.

Carney, and his colleagues on the Monetary Policy Committee, must weigh up whether to slash borrowing costs to give the economy a lift, or sit tight and see whether there’s really a “Boris Bounce” after last month’s election.

The odds of a rate cut have been volatile in recent weeks -- hitting over 60% at one stage, after weak growth figures suggested the economy was flatlining. But they have dropped back to 50% in recent days, after survey data suggested the private sector is growing again.

It’s a devilish decision. With Brexit due tomorrow night, the Bank might be tempted to cut rates from 0.75% to 0.5% to shore up confidence. But with new governor Andrew Bailey taking over in March, they might like to leave him some ammunition too.

Back in December, the Bank voted 7-2 to leave borrowing costs unchanged, with policymakers Michael Saunders and Jonathan Haskel calling for a cut. But since then, two more external members - Silvana Tenreyo and Jan Vlieghe - have both hinted that they could vote for a cut.

So it’s going to be terribly exciting at noon today, when the decision hits the wires. Central banks take pride in their ability to guide the markets through judicious communication, but today’s decision really could go either way.

James Smith, economist at ING, predicts the Bank will hold rates.... just.

It’s not clear that the remaining five ‘internal’ members of the committee will back calls for easing right now. Admittedly, we don’t have that much to go on in terms of communication, but as we noted at the time, our sense from Governor Mark Carney’s recent speech was that he hadn’t been fully convinced of the merits of cutting interest rates this month.

While his comments were perhaps the most candid he has been on the idea of easing, he noted the better news on politics, and pushed back on the idea that the Bank was running out of ammunition.

Also coming up today

Fears over the coronavirus are intensifying today, as the death toll rises to 170 overnight. Asian stock markets are deep in the red, with Hong Kong losing another 2.8%.

Yesterday, Federal Reserve chair Jerome Powell said the outbreak would have an impact on the Chinese economy, and the wider global economy, adding:

Of course we are very carefully monitoring the situation.

European stocks are expected to suffer, as countries around the globe close their Chinese stores and factories. The FTSE 100 has just dropped by 71 points at the open to 7412, back towards Monday’s lows.

We find out how America’s economy fared in the last quarter of 2019. Economists predict growth remained around 2.1% per year -- not exactly sizzling.

And it’s a busy day in the City, with oil company Shell reporting a halving of its profits, Unilever reviewing its global tea business, and BT warning that the UK’s curbs on Huawei will cost it £500m.

The agenda

  • Noon GMT: Bank of England’s interest rate decision, and monetary policy report
  • 12.30pm GMT: BoE governor Mark Carney holds press conference
  • 1.30pm GMT: US GDP for October-December 2019: Forecast to have grown by 2.1%, as in Q3

Updated

 

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