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While Carney did not deliver a cut on his final meeting, the door is still open for a cut in March, explains Morten Lund – Analyst at Nordea Markets – following Thursday’s highly anticipated BoE decision.

Key Quotes:

“The MPC said that the reason for being on hold was that the Committee wants to see just how pronounced the post-election macro rebound really is. For example, the composite PMI increased by 3.1 index points in January – the fifth largest ever monthly increase. The wait-and-see approach is fully in line with the BoE’s reaction function post-Brexit.”

“Although the argument to make a precautionary cut was overruled, the uncertainties related to both the “BoJo bouncing” macro outlook as well as the phase-2 Brexit negotiations meant that it was a dovish hold. The door is thus still open for a cut in March (around 8 bp cut is priced in). At this time, the new Governor Andrew Bailey will be in place.”

“Overall, our base case is that the BoE will be on hold throughout 2020, but maintain its dovish bias until there is more clarity about the macroeconomic development after the December election. The market reacted by sending gilt yields and the sterling higher. However, due to the dovish hold, the decision did not spur a big rally, in line with our expectations. A rate cut in March is not out of the question.”