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BoE defies expectations to hold bank rate at 0.5%

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    BoE defies expectations to hold bank rate at 0.5%

    (Taken from the Financial Reporter)

    Despite economists suggesting an 80% probability of a bank rate cut, the Bank of England’s Monetary Policy Committee has voted to keep the base rate at its current historic low of 0.5%.

    However most members of the Committee expect monetary policy to be loosened in August, after official data on economic activity covering the period since the referendum are available.

    The MPC voted 8 to 1 to maintain the rate, with Gertjan Vlieghe voting to reduce Bank Rate by 25 basis points.

    The Committee said it will consider over the coming period how the outlook for the economy has changed in light of the referendum result and will publish its new forecast in its forthcoming Inflation Report on 4 August.

    The minutes show that the Committee discussed various easing options and combinations, stating that "financial markets have reacted sharply to the United Kingdom’s vote to leave the European Union".

    Regarding the housing market, the MPC say that survey data point to a "significant weakening in expected activity".

    Immediately after the Referendum result, the swaps market gave a 50% chance of an interest rate cut in July, a 65% chance of a cut by August, and an 80% chance of a cut by the end of the year.

    Bank of England governor Mark Carney said last week that "the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer".

    He added that “uncertainty over the pace, breadth and scale of these changes could weigh on our economic prospects for some time".

    He confirmed that over the coming weeks, the Bank will consider "a host of other measures and policies to promote monetary and financial stability".

    Ex-MPC member Andrew Sentance, speaking in the Financial Times today, warned that a cut could have had an unintended negative effect, saying: "A cut in interest rates or restarting QE could lead businesses and consumers to conclude the situation is worse than it is — and trigger the loss of confidence the BoE is trying to avoid."

    #2
    Good.

    Comment


      #3
      Cut will happen in August.
      First Law of Contracting: Only the strong survive

      Comment


        #4
        Did it?

        That was to be expected from about 9am Monday morning...

        Twas a profitable morning though....
        merely at clientco for the entertainment

        Comment


          #5
          80% of experts expected a rate cut

          First Law of Contracting: Only the strong survive

          Comment


            #6
            Next meeting is in 3 weeks time. I would be surprised if anything changes then, the change would be in September if required...
            merely at clientco for the entertainment

            Comment


              #7
              Originally posted by eek View Post
              Next meeting is in 3 weeks time. I would be surprised if anything changes then, the change would be in September if required...
              Personally, I think they're more likely to act in August with a 25bp cut and something on funding for lending (probably not QE). Carney telegraphed that July and August should be taken together, and there's no (firm) survey evidence yet. By August, they will have the new inflation report and a reasonable basis to begin acting. TBH, I'm surprised that markets had priced in an 80% chance in July given that central banks typically move quite slowly and deliberately (relatively speaking), at least until they have solid evidence. Also, the financial markets are not showing any signs of panic since the initial reaction. "Defies expectations" is right, but the expectations were odd. August for the cut, most likely.

              Comment


                #8
                The rate cut will come when the stats show the economy tanking, which it will.
                Move on, nothing to see here.

                Comment


                  #9
                  Originally posted by CretinWatcher View Post
                  The rate cut will come when the stats show the economy tanking, which it will.
                  Move on, nothing to see here.
                  It's a race to the bottom for sure, but the EU has a 100 mile long headstart on everybody else, so comparatively speaking we are already the economic winners.
                  First Law of Contracting: Only the strong survive

                  Comment


                    #10
                    Originally posted by CretinWatcher View Post
                    The rate cut will come when the stats show the economy tanking, which it will.
                    Move on, nothing to see here.
                    Ah no Ted

                    Comment

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