With just a week left until the “hard Brexit” deadline, it is not surprising that traders remain far more focused on the ongoing Brexit developments, where overnight skepticism about a lengthy Brexit extension returned – as Theresa May now appears to have lost all control of the process – pushing cable to session lows. As such, it is also not surprising that there was almost no market reaction to the Bank of England’s decision this morning, which kept rates on hold while voicing more of the same concerns about Brexit’s impact on the UK economy.
— Bank of England (@bankofengland) March 21, 2019
Courtesy of RanSquawk, here are the key judgements announced by the BOE:
- Vote split on the base rate: MPC votes 9-0 to stand pat on rates at 0.75%
- Vote split on corporate bonds: MPC votes 9-0 to maintain the stock of corporate bonds at GBP 10bln
- Vote split on APF: MPC votes 9-0 to maintain the stock of UK government bond purchases at GBP 435bln
- Brexit: The economic outlook will continue to depend significantly on the nature and the timing of the UK’s withdrawal from the EU. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction
- Rates: Were the economy to develop broadly in line with the projections made in the Feb QIR, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% inflation target
- Developments since the QIR: Since the prior meeting, economic data has been mixed, but the projections made in the Feb QIR appear to be on track
- Growth: Bank staff now expect GDP to grow by 0.3% in Q1 2019, marginally stronger than seen in the Feb QIR. Most indicators of consumer spending are consistent with ongoing modest growth
- Inflation: CPI rose marginally in February to 1.9% with inflation expected to remain close to the 2% target over the coming months
- Labor market: The labour market remains tight. However, survey indicators imply that the outlook for employment growth have softened
- External factors: Broad-based softening in global GDP and trade growth has continued
As Bloomberg adds, the Bank of England said more companies had triggered plans for a no-deal Brexit as it kept policy in a holding pattern while the government takes withdrawal talks to the brink. Around two-thirds of firms surveyed by the central bank said they had started implementing contingencies for a disorderly departure from the European Union. About 80 percent judged themselves ready for such an outcome.
Here are some other hot takes from the bank’s summary of business conditions:
- Contacts reported a further softening in activity over the past few months compared with a year ago
- Growth in consumer demand slowed a little further, especially for major household purchases
- A majority of contacts in the Agents’ Brexit survey said they were making contingency plans in case of a no deal Brexit
- Investment intentions continued to weaken, particularly in manufacturing
Of course, with Britain just days away from its scheduled departure date from the EU, what the BOE does today is largely irrelevant and will be subject to the consequences of the March 29 outcome, as the British relationship with the bloc is as unclear as ever. Prime Minister Theresa May has asked for a short extension of the timeline, but there’s still a risk that the U.K. could leave without a deal, which would threaten chaos in trade and a sharp drop in the pound.
“Brexit uncertainties had also continued to weigh on confidence and short-term economic activity,” the minutes of the Monetary Policy Committee meeting said. While many firms said they were prepared for no-deal, “companies had also reported that there were limits to the degree of readiness that was feasible in the face of the range of possible outcomes.”
And with Brexit dominating, the market reaction to the BOE was virtually non-existant as cable first dipped then rebounded in a very tight range…
… even as gilt yields continued to plumb 2 year lows, largely in response to yesterday’s dovish Fed.