Janus Henderson Investors: Making room for Governor Bailey

Bethany Payne, Global Bonds Portfolio Manager Janus Henderson Investors

"The Bank’s decision was less dovish than the market expected with only two dissenters calling for the immediate need for rate cuts; the same number as in the Bank’s December meeting. Despite lacklustre economic performance and inflation remaining materially below the Bank's target, the Committee bought time for the new Governor, Andrew Bailey, who succeeds his predecessor in March. 

Governor Carney highlighted that the recent rebound in sentiment and confidence surveys since the December general election, as well as expected fiscal stimulus in the March Budget would provide key tailwinds for the economy, which could push up equilibrium rates in the UK. However, while the scales fall from the Committee's eyes on the UK's withdrawal from the EU, their vision has not cleared completely. They therefore remain reactive to incoming data and maintain the need for proactive monetary policy, to reinforce activity if indicators do not recover broadly in line with their expectations.

With Johnson's UK/EU trade plans seemingly less ambitious than the Committee's assumption of an orderly transition to a deep Free Trade Agreement (FTA), with divergences only emerging over time and Johnson’s objective of not extending the transition period beyond the end of 2020, the road map for the UK economy will soon become clearer. Today’s on hold Bank Rate decision gives the new Governor, Andrew Bailey, room to be proactive and reinforce activity with monetary easing if the need arises."