After many rumours, lots of criticism and ahead of the upcoming Bank of England (BoE) meeting on Thursday, BoE Governor Mark Carney announced he will extend his term until the end of June 2019 , see also BoE website .
In his letter to the Chancellor, Mark Carney states that 'by taking my term in office beyond the expected period of the Article 50 process, this should help contribute to securing an orderly transition to the UK's new relationship with Europe' .
We think it is positive as it removes some uncertainty about Carney staying throughout the two years of Brexit negotiations under Article 50. We think BoE under Carney's continued leadership will continue its easing bias, standing ready to support the economy through further easing if needed - despite inflation expected to increase above the 2% target over the coming year. This is positive since it is too early to rule out that the economy could slow due to the higher amount of uncertainty.
Also, it puts an end to the discussions about BoE independence , which begun with PM Theresa May's comments on the distributional effects from monetary policy in the beginning of October in connection with the Conservative Party conference. After that, more Brexiters have criticised Carney for his comments on the economic consequences of a Brexit during the referendum campaign.
That said, the transition from Mark Carney to a new BoE Governor by the end of June 2019 (just three months after the Article 50 exit-negotiations conclude assuming PM Theresa May triggers Article 50 in March) may create some disturbance , especially if the negotiations are not concluded during the two years, which is not an unrealistic scenario.
With respect to its meeting on Thursday, we expect BoE to stay on hold in line with consensus and market pricing. That said, we think BoE will maintain its easing bias stating it stands ready to ease further if needed to support the economy. We think there is more than a 50/50 probability of a cut at the next big meeting in February but it depends on whether the economy slows in Q4. We expect upward revisions to both the GDP growth and CPI inflation projections as economic data have been better than expected and due to the further GBP weakening. For more see page 3 in our latest Weekly Focus , 28 October.
To read the entire report Please click on the pdf File Below