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RBS Predicts Interest-Rate Cut This Month After BOE’s Dovish Shift

Fergal O'Brien
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RBS Predicts Interest-Rate Cut This Month After BOE’s Dovish Shift

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The Bank of England’s dovish shift in the past week has already rippled through markets, and now economists are starting to react too.

NatWest Markets, a division of Royal Bank of Scotland Group Plc, changed its interest-rate forecast and now sees a cut to 0.5% from 0.75% at this month’s meeting. Economist Ross Walker sees a second reduction later in the year, having previously predicted no move by the BOE at all until May. Deutsche Bank AG and Nomura also forecast a rate move in two weeks.

More forecast changes may follow 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.

Walker said there’s been an “unmistakable underlying deterioration in the U.K. economic data.”

The pound was little changed at $1.2997 as of 3:45 p.m. London time, halting a five-day losing streak. U.K. government bonds rose, pushing 10-year yields 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.

Nevertheless, there’s plenty of data still to come, and not all economists are convinced the BOE will act so quickly. Recent comments probably aren’t “as dovish as they appear,” according to HSBC economist Elizabeth Martins. Carney’s and Tenreyro’s remarks in particular seem similar to the BOE’s last set of minutes, she said, and the PMI published on 24 January should be strong enough to keep most policy makers from voting for an immediate cut.

(Updates with HSBC comments in final paragraph)

--With assistance from Jill Ward.

To contact the reporter on this story: Fergal O'Brien in Zurich at

To contact the editors responsible for this story: Fergal O'Brien at, Andrew Atkinson

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