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Bank of England unlikely to follow Fed rate hike lead after last monetary policy meeting of 2019

Recent weak economic data, a general malaise on Brexit and the febrile political environment is now likely to lead to UK policymakers to take more of a ‘wait and see’ approach

Bank of England
Howard Archer. chief economic advisor to the EY ITEM Club, commented: “We expect just one interest rate hike in 2019 followed by two in 2020"

Although the Federal Reserve is widely expected to hike US interest rates for a fourth time this year on Wednesday evening, no changes are expected when the last monetary policy decision of 2019 is announced by the Bank of England on Thursday.

Recent weak economic data, a general malaise on Brexit and the febrile political environment is now likely to lead to UK policymakers to take more of a ‘wait and see’ approach on interest rates going forward based on the various possible outcomes around the UK’s exit from the EU.

Howard Archer. chief economic advisor to the EY ITEM Club, commented: “We expect just one interest rate hike in 2019 followed by two in 2020 (taking rates up to 1.50% by the end of 2020) as the MPC seeks to gradually normalise monetary policy.

“We see a further two interest rate hikes in 2021, causing them to be at 2.0% at end-2021.”

Retail sales looking grim

After Tuesday’s UK inflation showed a fall to a 20 month low in November, as a recent retreat in petrol prices countered the impact of sterling weakness on Brexit worries, the latest UK retail sales data on Thursday will still likely make for further grim reading.  

October’s UK retail sales figures were pretty disappointing, falling by 0.4% month-on-month, and investors must be braced for another tough set of November figures – given ‘Black Friday’ comparatives -  which will give key indicators for Christmas sales, the most important month for any retailer.  

The problems seem to be around non-food spending and with the crucial Christmas sales period underway many high street general retailers are already facing existential threats, while this week’s profit warning from online fashion giant ASOS plc (LON:ASC) showed internet retailing is also not immune.

No smooth sailing for Carnival

The only scheduled blue-chip news of the week is expected on Thursday from dual UK-US listed cruises operator Carnival PLC (LON:CCL), which issues a fourth-quarter trading update in the afternoon.

Carnival’s shares have struggled a bit this year, particularly in the second half, although that has been true of most stock markets more generally.

The combination of higher fuel costs and a stronger dollar prompted Carnival to cut its full-year earnings per share (EPS) guidance for the full-year to US$4.15 and US$4.25 with its third-quarter update, although that would still beat last year’s outcome of US$3.61

A third consecutive year of above-average hurricane and storm activity in the Atlantic, with Hurricanes Florence and Michael have also created disruption in the autumn.

Significant events expected on Thursday December 20:

Bank of England rate decision

Trading update: Carnival PLC (Q4) (LON:CCL) 3pm

AGMs: Block Energy Plc (LON:BLOE), Mosman Oil &Gas Limited (LON:MOS)

Ex-dividends to clip 0.57 points off FTSE 100 index: Berkeley Group PLC (LON:BKG), Burberry Group PLC (LON:BRBY), United Utilities PLC (LON:UU.)

Economic data: UK retail sales; US weekly jobless claims; US existing home sales

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