United Kingdom elections tie the hands of the central bank


The December 12 elections will hinder any attempt to prepare the markets for a move in the next decision of the central bank just before Christmas

The Bank of England is forced to remain calm just when prospects may change in the face of new elections in the United Kingdom. Ace, restricts its ability to reinforce signals of an imminent decline in interest rates, according to Bloomberg.

The elections of December 12 hinder any attempt to prepare the markets for a move in the next decision of the central bank just before Christmas. The agency is now in a period of usual pre-electoral silence, where communication is restricted due to political impartiality.

Even so, two officials voted, surprisingly, in favor of an immediate cut last Thursday. The committee as a whole warned that if the global slowdown worsens, or the Brexit situation deteriorates, "monetary policy may need to reinforce the expected recovery".

Neither the majority nor the two dissidents, Michael Saunders or Jonathan Haskel, can explain the reasons for their vote in the short term, notes Bloomberg. Without the perspective of the Central Bank of England, investors will be left alone to judge whether the global slowdown or Brexit reinforce the case to obtain more stimuliThe situation will worsen especially after the elections, which can significantly alter the perspectives of fiscal policy and how the exit of the European Union develops.

Skepticism of experts and investors

Economists are skeptical about whether or not the central bank is prepared to reduce rates in December without having to lay the groundwork. "The lack of communication before the meeting of the Monetary Policy Committee of December hinder the communication of a change in policy"said Sanjay Raja, an economist from the United Kingdom at Deutsche Bank AG in London, in statements to Bloomberg." Given the split vote, the changing position of the Bank of England guarantees more communication and not less. This is one of the reasons why we hold that a January cut is more plausible than a December cut"add.

Postponing the measure will leave the central bank further than its international peers in the flexibilization policy. The Federal Reserve of the United States has lowered interest rates three times this year, while the European Central Bank restarted an extensive stimulus plan.

Royal Bank of Canada economists Peter Schaffrik and Cathal Kennedy have insisted that "it will not be possible for the members of the Monetary Policy Committee to indicate any change in their positions or think before the meeting, so, in the absence of a major change in the future, it is likely to remain on hold at the final meeting this year. "

Investors also seem to share that opinion. The reaction in the pound to the division of votes was limited, while the money markets see only 15% chance of a cut in December, reaching about 40% the following month. Still, another surprise in December is not impossible. Haskel's shocking vote for a cut on Thursday showed that some officials are happy to press for a change in rates without first sending clues with their public comments.

The period of pre-election calm has also forced the Bank of England to delay the publication of its annual stress tests for banks. Now, the central bank publish the results and the Financial Stability Report, previously scheduled for December 10, December 16.

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