Corporate Advisory

Rate Cut possible from the BoE this Thursday

The Bank of England is poised to slash interest rates to close to zero this week as fears mount over a Brexit-induced recession.

Economists believe the Monetary Policy Committee (MPC) will cut rates to a new low of just 0.25% on Thursday, while markets have priced in a 75% chance of more easing.

Bank of America Merrill Lynch believes policymakers will reduce rates to as low as 0.1%.

A cut would be the first change in interest rates since March 2009, when the base rate was slashed to 0.5%.

Global investors have rowed back their hopes for higher interest rates following the UK’s decision to leave the EU. Ahead of last month’s poll, markets were priced for 0.19 percentage points of rate cuts from the G7 central banks over the coming year. Now, they expect almost a full percentage point of cuts to be unleashed in the next 12 months.

Money managers believe that the Bank of England’s cuts will be the deepest, slashing rates from their historic low to just above 0.1% The next interest rate rise in Britain is not expected until 2022.

While some economists expect policymakers to wait until August to slash rates, others urged swift action. “If the MPC has already decided monetary easing will be needed, there is little point waiting,” said HSBC analysts.

The Bank of Japan and Bank of Canada are also expected to unleash stimuli in the next year, while the US Federal Reserve’s plans for further rate rises have been all but abandoned, despite last week’s robust jobs figures.

The nine MPC members are also expected to signal a fresh round of quantitative easing to support growth.

Analysts believe the Bank will start adding to its £375bn stockpile of asset purchases next month, when policymakers will publish an analysis of the likely impact of the Brexit vote on growth and inflation.

Mark Carney, the Governor of the Bank, has said he expects some monetary easing will be required. However, he warned of the potential consequences of ultra-low rates.

 

Two founder MPC members urged policymakers to proceed carefully.

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