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BOE Timeline: Tracking the Swinging Bets on January Rate Cut

David Goodman

(Bloomberg) -- Expectations for a Bank of England interest-rate cut this month have been on a wild ride, rapidly climbing from almost zero at the start of the year before moderating as surveys showed a post-election bounce.

With the decision less than a week away, market pricing indicates this is most uncertain meeting of Mark Carney’s governorship. Here’s a look at the key dates in traders’ bets on a monetary-policy loosening in January.

Dec. 13, 2019: Johnson Wins

While bets on a January cut were fairly low going in to the U.K. election, the decisiveness of Boris Johnson’s election win saw them cut to nearly zero. The result removed a cloud of uncertainty over the economy, and paved the way for the U.K. to officially leave the European Union on Jan. 31.

Chance of a January Cut: 3%

Dec. 19, 2019: Wait and See

The BOE’s final decision of 2020 saw two policy makers -- Jonathan Haskel and Michael Saunders -- keep up their push for an immediate reduction in rates. Others were prepared to be more patient, with most saying it was too early to tell whether the clearer path for Brexit would improve sentiment.

Chance of a January Cut: 12%

Jan. 1, 2020: Happy New Year

Even amid growing concerns over the potential turmoil of the next stage of exit talks, expectations for an imminent cut were low heading into the new year.

Chance of a January Cut: 8%

Jan. 9: Carney’s Speech

Investors were jolted out of any new-year hangover at the end of the first week of trading after Carney said the BOE was debating the merits of additional monetary stimulus and has plenty of room to act. While his remarks highlighted the need to watch incoming data, traders started weighing the prospects of a move.

Chance of a January Cut: 17%

Jan. 10: Tenreyro Weighs In

Those bets gathered pace the very next day, when the MPC’s Silvana Tenreyro said she may support a rate cut in the next few months. Tenreyro, who has never dissented from the majority during her time as a rate setter, suggested she could be persuaded to join the doves if sluggish global growth and uncertainty surrounding Brexit persist.

Chance of a January Cut: 24%

Jan. 13: Growth Shock and Vlieghe’s View

By the start of the next week, January was very much seen as a live meeting. Speculation mounted as first Gertjan Vlieghe told the Financial Times he would vote for an interest-rate cut at that meeting if there are no signs of the economy improving after the general election, and then a report showed the economy unexpectedly shrank in November.

Chance of a January Cut: 47%

Jan. 15-17: Inflation and Retail Woes

Within days, bets on a reduction had reached fever pitch -- approaching levels some in the market considered to be fully priced. The moves were supercharged by successive data releases showing economic malaise in December, as first inflation, and then retail sales, came in well below economists’ expectations.

Chance of a January Cut: 70%

Jan. 21-23: Jobs Jolt, CBI Optimism and PMI Beat

That surge left some analysts urging caution, and those concerns were borne out the following week as certainty began to crumble.

A report indicating the U.K.’s labor market remained in good health going into the election saw some expectations pared, before an often-overlooked survey from the Confederation of British Industry showed a record surge in optimism among manufacturers, bringing bets down closer to 50%. They stayed around that level on Friday even after a closely watched measure of U.K. economic activity jumped to the highest since 2018 in January, confirming the trend of a post-vote bounce.

Chance of a January Cut: 57%

Jan. 30: Decision Day

After all that volatility, the January meeting still remains on a knife-edge. The BOE will unveil its decision on Thursday, Carney’s last before he steps down in March. The governor will hold a press conference 30 minutes after the midday announcement.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Brian Swint, Lucy Meakin

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