BoE: PMI improvement would probably prevent a rate cut in January – ABN AMRO

Bill Diviney, the senior economist at ABN AMRO, notes that market expectations for a rate cut at the 30 January meeting have surged with a 25bp move now more than 50% priced in, up from just 5% from last week.

• "The move came after weekend comments from MPC member Gertjan Vlieghe suggested he supported a near-term cut unless there was 'an imminent and significant improvement' in data. He pointed to survey data due at the end of the month, likely referring to the flash PMIs due out on 24 January, as being key inputs to the decision.
• In favouring a near-term cut, he joins two others (Carney and Tenreyro) who have signaled a willingness to support easing, depending on how quickly confidence returns to the economy, as well as two MPC members who have already voted for a cut (Saunders and Haskell). While the balance on the MPC has clearly shifted to an easing bias, there are signs that confidence might be returning to the extent that it would indeed stave off a move.
• Most notably, business confidence as measured by the Deloitte survey of CFOs - which was conducted in the election aftermath between 13 December and 6 January - rose by the most in the survey's 11-year history. While this measure of confidence tends to under- and overshoot moves in the PMIs, directionally they historically move in sync. This suggests a considerable improvement in the January flash PMIs, which would probably be enough for the MPC to hold fire at this stage, in our view (although it could be a close call).
• Further out, we continue to expect relatively muted growth in the UK in 2020, with uncertainty likely to weigh on business sentiment again later in the year as we approach the end of the Brexit transition period, and in the absence of significant progress towards a trade deal."