Bank of England: What is the Next Move?

Bank of England:  What is the Next Move?

The Bank of England is bracing for the effects of the Brexit vote.Markets have been fleeting since the results were announced on June 24th and they are still wary of what may happen in the future as the United Kingdom enters unchartered territory by leaving the European Union.

The Bank of England is supposed to meet on the 14th of July to decide how to act against adverse effects to the British economy.  Various economic experts and news reports already speculated that the Bank of England will reduce its main interest rates.

Quantitative Easing Programs

The Bank of England might also decide to enter a quantitative easing program buying spree to cushion against the Brexit’s blow.  According to Bank of England governor Mark Carney, there is already a stimulus package ready and set but the details will remain unknown until the Bank of England’s meeting on Thursday 14th of July.

A recent report from easyMarkets points out that a rising number of investors expect the BoE to cut interest rates below their already record low of 0.5 percent, as cutting interest rates is a way for the Bank of England to boost lending and support household consumption.

Economic Experts

However, the same report pointed out the fact that other economic experts believe that the Bank of England may wait until 4th of August (the day of its next policy announcement) to announce anything, in order to properly assess the impact of the Brexit vote on the economy.

A news report by CTV News pointed out that: “Carney said in a June 30 speech that the monetary policy committee will make an initial assessment of the economic situation at this week’s meeting and release new economic forecasts in August, indicating the two meetings should be seen as a package.”

One of the numerous unknowns is how much the Bank of England Monetary Committee will cut its interest rates by; experts and news reports indicate that may take the option of cutting the (already low) interest rates by 50 basis point to zero in one go or they may go for a smaller cut of 25 basis point cut. Carney warned against low-interest rates for too long: “If interest rates are too low – or negative – the hit to bank profitability could perversely reduce credit availability or even increase its overall price.”

Inflationary Pressures

Mitul Patel, head of interest rates at Henderson Global Investors, warned in a piece published by the Financial Times that the spectre of inflation looms.  He said: “Current valuations do not provide much of a cushion should inflation or growth surprise positively over the coming years.” Higher inflation would adversely affect UK’s national economy, as it would mean less available income at a time when growth is weaker. In conclusion, many economic actions will depend on whether the Bank of England Monetary Policy committee will take bold action straight away or prefer to wait until they have a better assessment of the situation.

 

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About the Author
Richard Cox is a university teacher in international trade and finance. Lessons in macroeconomics and price behavior in equity markets. Trade ideas are generally suggestive of time horizons of one to six months.

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