UK: MPC member Forbes speaks out against need for another rate cut - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the pound has derived some support yesterday from comments by MPC member Forbes who stated that “at this point I don’t see the case for additional stimulus” although her view remains data dependent.

Key Quotes

“She also displayed a more optimistic tone over the potential performance of the UK economy following the Brexit vote questioning whether the BoE maybe “over-counting the effects of uncertainty” and expressing the view that the incoming data points towards “some upgrade” to the BoE’s economic outlook.

The comments stand in contrast to the bearish policy signal in the latest MPC minutes which suggested that most MPC members still expected to lower rates further this year. It is one of the reasons why we think the pound is failing to derive much support from the recent stronger UK economic data flow alongside still elevated Brexit uncertainty.

We question the immediate need to deliver further stimulus so soon after easing policy aggressively in August. The surprising initial resilience of the UK economy and expected upcoming loosening of fiscal policy in the Autumn Statement argues against a further rate cut as soon as November. If the BoE refrained from delivering another rate cut this year, it would offer more support for the pound whereas following through with the flagged rate cut could reinforce pound weakness.”