BOE Rate Cut in Doubt Amid Signs of Post-Election Growth Bounce
Friday, 24 January 2020 16:43 WIB | ECONOMY |Ekonomi inggris

A closely watched measure of U.K. economic activity surged to the highest since 2018 in January, undercutting the case for a Bank of England interest-rate cut next week.

IHS Markit's flash index for output across the whole economy jumped to 52.4 as firms cited reduced political uncertainty in the wake of Boris Johnson's decisive election victory. That's up from 49.3 last month and above levels most economists said would be enough to stave off a rate cut on Jan. 30.

Investors see the Purchasing Managers Indexes as a key factor in the debate over BOE easing this month, providing the most up-to-date assessment of the economy after the Conservatives' win on Dec. 12. They may cause markets to pull back on pricing for a move, which reached as much as 70% last week.

Markit said the figure, which came in well above the 50.7 median-estimate of economists, was consistent with a quarterly growth rate of about 0.2%. That's good news for Johnson as he prepares to officially take the U.K. out of the European Union next week.

œIt seems likely that the rise in the PMI kills off the prospect of an imminent rate cut, with policy makers taking a wait and see approach as they assess the performance of the economy in the post-Brexit environment, said Chris Williamson, Markit's chief business economist.

While a January rate cut was seen as unlikely at the start of 2020, a spate of weak data, along with dovish comments from policy makers, boosted speculation a move was coming. 

Two of the BOE's nine officials have already voted for easing, while a number of others, including Governor Mark Carney, have indicated they would be paying close attention to the data before making up their minds.

The PMIs, like a report earlier this week from the Confederation of British Industry, showed optimism among firms had jumped following the election, with Markit's measure reaching the highest since June 2015. They also suggested the pickup may translate into real growth, with measures of new work rising strongly.

The flash readings, based on 85% of responses, showed a gauge for the U.K.'s dominant services sector alone jumped to a 16-month high of 52.9, from 50 last month. Meanwhile an index for manufacturing reached 49.8, up from 47.5 in December and approaching the 50 level that separates expansion from contraction. Final readings will be released in the first week of February.

Source : Bloomberg

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