(Bloomberg) — The Bank of England’s dovish shift in the past week has already rippled through markets, and now economists are starting to react too.
Royal Bank of Scotland Group (LON:) Plc changed its interest-rate forecast and now sees a cut to 0.5% from 0.75% at this month’s meeting. It also sees a second reduction later in the year, having previously predicted no move by the BOE at all until May.
RBS’s change of view may be followed by others after Governor Mark Carney and other policy makers said the BOE is looking at whether more stimulus is needed for the economy. Those comments have already sent the pound on its worst losing streak since May, and market bets on a rate cut on Jan. 30 have jumped to around 50%.
Economic data on Monday showed the U.K. economy unexpectedly shrank in November. The year-on-year rate of 0.6% was the weakest since mid-2012.
RBS said there’s been an “unmistakable underlying deterioration in the U.K. economic data.”
The fell 0.2% to $1.2967 as of 9.10 a.m. London time, heading for a sixth straight decline. U.K. government bonds rose, pushing down three basis points to 0.72%, the lowest since early December.
In his first major speech of 2020, Carney said the Monetary Policy Committee has plenty of firepower to aid the economy if necessary. Policy maker Silvana Tenreyro said she may support a rate cut in the next few months if sluggish global growth and Brexit uncertainty persist. Gertjan Vlieghe went further, saying he’d need to see an improvement to justify waiting to cut.
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