The BOE’s In-House Report That May Hold Key to Rate-Cut Debate

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Investors scrutinizing U.K. economic reports to gauge whether the Bank of England will cut interest rates next week are missing one potentially vital bit of insight that policy makers are keeping under wraps.

Reports from BOE agents -- a cross-country network that holds confidential conversations with businesses and community organizations -- could be key for officials trying to judge whether economic sentiment has rebounded since December’s general election.

The BOE has regularly cited the intelligence, drawn from nearly 30 agents across 12 regions, in speeches and meetings in recent years, and a member of the network also usually briefs the rate-setting committee before its decision. Governor Mark Carney and Michael Saunders, a policy maker who is already backing a cut, both highlighted the reports this month.

“In the coming weeks, the MPC will watch closely surveys of business and consumer confidence -- including intelligence from our agents.”

--Mark Carney, Jan. 9

A spate of weak data this year, allied with dovish remarks by some officials, has boosted investors’ bets on a Jan. 30 rate cut. Even after a strong labor market report on Tuesday bucked the recent trend, market pricing put the probability of such a move at around 65%, while economists see the odds of a reduction at about 50%.

Yet investors and forecasters will be in the dark about the views from agents until the decision is announced, when the accompanying Monetary Policy Report will include a section summarizing the feedback.

It means that the most up-to-date economic data publicly available -- Purchasing Managers’ Indexes released on Jan. 24 -- might not prove as critical as many believe.

The heightened focus on agents now, between the general election and the Jan. 31 deadline for Britain to leave the European Union, mirrors the approach taken last year when policy makers paid increased attention to agent’s reports as the Brexit negotiations distorted data.

What Our Economists Say:

“The missing piece of the jigsaw in the run up to the meeting on Jan. 30 will be the intelligence the MPC receives from the BOE’s Agents. If the interest rate decision is on a knife-edge, that information could tip the balance for some policy makers.”

-- Dan Hanson, Bloomberg Economics

An individual agent can visit hundreds of local businesses and other groups a year, with meetings ranging from trips to farms and food banks to round-table discussions. They are sometimes even accompanied by members of the Monetary Policy Committee, as with Saunders’s trip to the area around Belfast last week.

“We’ll know more in the next weeks and months,” Saunders said when asked about the rate decision and the economy. “The Bank of England’s agents are constantly doing surveys of businesses and feed that information back to us to give us a sense as to what’s happening. And so we will be able to judge.”

--With assistance from Harumi Ichikura and Samuel Dodge.

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net;David Goodman in London at dgoodman28@bloomberg.net

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

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