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U.K. Economic Data Slew Greets BOE Officials Debating Cut

Lucy Meakin

(Bloomberg) -- Bank of England policy makers considering whether the U.K. needs further stimulus will get a deluge of data in the coming days.

Gertjan Vlieghe became the third official in a week to say an interest-rate cut is in prospect. Governor Mark Carney said the bank is debating the merits of action and has plenty of firepower if necessary. Monetary Policy Committee member Silvana Tenreyro added that she may support an interest-rate reduction in the next few months if sluggish global growth and Brexit uncertainty persist.

The BOE was one of the few major central banks that didn’t join the global monetary policy easing of 2019. Hemmed in by Brexit uncertainty, it held fire through the political battles and tense negotiations. Though the U.K. finally agreed on an exit deal in late 2019, there’s still the huge hurdle of the future trading arrangements and a risk that the lack of clarity could continue to damp activity.

Vlieghe said he’d need to see an improvement in the data to justify waiting to lower the current rate of 0.75%. His colleagues Michael Saunders and Jonathan Haskel have been calling for a reduction since November. Saunders will likely lay out his case when he makes his first speech since then on Wednesday in Bangor, Northern Ireland.

What Our Economists Say:

“The debate on the MPC around the need for stimulus is finely balanced. Tentative signs of a rebound in the data, lower uncertainty and the prospect of a big fiscal boost mean we think the committee will hold fire but the tolerance for downside surprises is clearly low.”

-- Dan Hanson, Bloomberg Economics

So far, data has been mixed. Final purchasing managers indexes showed the dominant services sector strengthened at the end of the year following Boris Johnson’s decisive election victory, while the hiring and business sentiment climbed. Yet consumers, often the bellwether of the British economy, showed signs of losing momentum as retail sales posted their worst year on record and big chains reported an increasingly tough retail environment over the Christmas period.

(Updates with Vlieghe comments from second paragraph)

--With assistance from Jill Ward and Sid Verma.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

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

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