As the UK economy approaches the Brexit deadline in January 31st many analysts argue for a rate cut by the Bank Of England. The Bank of England next monetary policy meeting is scheduled for January 30.
Data released earlier today will put further pressure to the central bank for a rate cut as the GDP disappointed investors. The UK GDP came in at -0.3% well below the market consensus of 0.0%, the lowest reading since June 2012. Meanwhile the UK Manufacturing Production contracted by a sharp -1.7% below the market consensus of -0.3% in November. The factory activity came weaker as the data reflect a period before the general elections and all the uncertainty around Brexit. Services contracted by -0.3% while the forecast was for an unchanged figure.
The Industrial Production came much weaker at -1.2% below the expectations of a flat report.
However, the bright spot today came from the construction spending which increased 1.9% beating the forecasts. The UK Total Trade Balance came in at £4.031B topping the expectations of £-2539B.
The previous week, Bank of England Governor, Mark Carney said that the central bank could act immediately with 250 basis points interest rate cut if needed. BoE could act through traditional cuts as well as quantitative easing and forward guidance.
Gertjan Vlieghe, an external MPC member of the Bank of England, said that he is ready to vote for lower rates from 0.75% to 0.5% if the data weakens towards the end of January something that happened today. Gertjan Vlieghe needs to see significant improvement in the UK economic data to justify waiting a little bit lower.
More dovish comments form Silvana Tenreyro came on Friday. Silvana Tenreyro another external MPC member said that the BOE would be carefully watching how companies and households respond to Brexit developments over the coming months and that will be the key to whether the BOE cut interest rates. Tenreyro said in a conference that she was ready to vote for an interest rate cut “in the coming months” if there was no sign of a bounce since the December general election.