Brexit averts shock
Interest rates to remain low and may go lower
Bank of England ‘won’t want to rock the boat’ (pic: Terry Murden)
Markets are pricing in a 70% chance that there will be no change to base interest rate in 2021, and a 30% chance there will be a cut.
Laith Khalaf, a financial analyst at AJ Bell, said expectations of another year of ultra-low rates are “baked in” despite the roll out of coronavirus vaccines, and the emergence of a Brexit deal.
“While market prices can of course be proved wrong, there are good reasons to think that the Bank of England will keep rates low throughout the coming year,” he said.
“Unemployment is expected to rise sharply in the coming months, and the UK economy is, at best, going to be in recovery mode.”
Mr Khalaf said that more than a decade after the Bank cut rates to an “emergency” 0.5%, few would have expected them to be even lower and that there was still scope for a further fall.
“Yet that is precisely the situation we find ourselves in,” he said.
“With such a fragile economic situation, the Bank won’t want to rock the boat by hauling in its vast monetary stimulus programme any time soon.
“Whether the MPC takes the plunge with negative rates really depends on the course of the pandemic, and the progress of the economy, in the coming months.
“A Brexit deal has at least averted a further economic shock which might have tipped the Bank of England towards a rate cut.”