BoE's November decision surprises markets - ING

James Smith, a developed market economist at ING, notes that the Bank of England (BoE) has taken markets by surprise, with two members voting for an immediate cut.

• "At face value, the Bank of England’s latest monetary policy decision is more dovish than expected.
• In a surprise move, two committee members voted for an immediate 25bp rate cut. Policymakers have also for the first time hinted at easing in their statement, suggesting that monetary policy may need to “reinforce” growth should Brexit uncertainty persist.
• That suggests (in case there was any doubt) that the Bank is very unlikely to follow through with its signalled rate hikes (should Brexit go smoothly) any time soon.
• But dig a little deeper, and the Bank's latest report isn't quite as downbeat as the overarching guidance implies.
• One surprising feature of the latest Bank of England projections is its decision to effectively assume that PM Johnson's Brexit deal will be ratified - taking the UK to a free-trade agreement in the longer-term.
• While this reflects the Bank's long-standing policy of basing forecasts on government policy, this will all depend on December's election. And while the polls suggest the Conservatives will gain a majority – giving PM Johnson the scope to get the deal ratified in Parliament - there is still a potential for big surprises when the UK goes to the polls next month.
• We wouldn’t rule out another hung Parliament, which could either prolong the Brexit uncertainty, or alternatively see a Labour-led minority government begin organising a second Brexit referendum.
• In other words, it's not inconceivable that we see another sizable change to the Bank's projections early next year, depending on who prevails at next month's election."