The Bank of England had the opportunity to cut rates on Thursday and chose not to. Their economic assumptions can only be described as grim, and yet still they chose to leave interest rates unchanged. To put their forecasts in context, the BoE has 0% GDP growth forecast in the fourth quarter of 2019 and is guiding for 1.5% CPI in one year’s time. Members are also clearly cognisant of the increase in spare capacity in the economy and what impact this will have on inflation.

If the hard data continues to disappoint, should we expect the MPC to reconsider? Maybe, but we would have to see significant disappointments now to warrant easing rates. For now, the BoE appears to be on hold, and as a result we should expect the gilt market to unwind some of its recent (absolute and relative) strength. We should also maybe expect a renewed Carney “unreliability” discount to creep back into gilts versus other rates markets, despite his departure.

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