MPC unlikely to cut more than 50bp in December
Simon Ward
Post a Comment
Economic models are prone to break down under extreme conditions. My MPC-ometer did not forecast the 150 bp Bank rate cut in November but it did indicate a larger reduction, of 75-100 bp, than expected by most economists - see here.
The December forecast will depend importantly on consumer and business survey results released around the end of the month. However, based on current information, the model suggests a cut of no more than 50 bp. A significant minority of economists expects a larger move, according to a Reuters poll conducted last week.
One property of the model is that the data hurdle for policy easing becomes higher as the absolute level of rates falls. Other factors holding it back from predicting a larger move are the recent further slump in the exchange rate and the MPC’s tendency to concentrate action in Inflation Report months.
Minutes of the November meeting released today indicate the MPC believes a further cut of more than 50 bp is warranted by the Inflation Report projections. However, these projections are subject to revision to take account of the fall in sterling (currently 6% below the level assumed in the Report) and fiscal loosening to be announced in the Pre-Budget Report. In addition, some MPC members argued that staggering a further reduction could help to support confidence as the economy weakens.
View Printer Friendly Version
Email Article to Friend
Reader Comments