Is there room for a rate cut?

Please see below the latest ‘Chart of the Week’ from State Street Global Markets.


This week Michael Metcalfe notes that UK inflation trends suggest the next move from the Bank of England will be a cut. He comments, “Almost half of the world’s central banks have eased policy this year. Against this weaker global backdrop, it is perhaps puzzling that the UK’s central bank, which is faced with one of the biggest global tail risks, a no deal Brexit, has not eased policy. In the Bank of England’s defence, the economy has held up okay and inflation had been robust. But that is beginning to change.

“Data this week should show that the economy escaped recession in Q3, but growth has clearly wobbled and  the inflation trend is softer too. The online inflation trend captured by PriceStats* has been weakened sharply in the last six months. While this doesn’t always result in declines in official data, the combination of sterling’s recent recovery and a weaker external back drop both suggest it should do this time.

“Understandably the question of UK interest rate moves has been couched almost entirely in the increasingly binary Brexit debate. However, the inflation trend suggests the next move in UK rates should be a cut and that the dissenters on the Monetary Policy Committee (MPC) this month, could soon find themselves in the majority early next year.”

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UK inflation trend points to room for rate cuts



Source: State Street Global Markets, Bloomberg

* About State Street PriceStats®

PriceStats is a provider of high-frequency global inflation indices that offer insights into key macroeconomic variables. The indices are generated using software that scans the underlying code on public websites to capture the full array of products sold by online retailers, including food, beverages, electronics, apparel, furniture, household products, prescription drugs, and over-the-counter medicines. The technology monitors price fluctuations on roughly five million items sold by hundreds of online retailers in more than 70 countries. The PriceStats methodology is grounded in the extensive body of research of MIT professors Alberto Cavallo and Roberto Rigobon and their Billion Prices Project at MIT. Cavallo and Rigobon have leveraged this research and their expertise in monetary economics to develop the PriceStats indices.

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