BoE Preview: Bank Seen Cutting Rates in July to Counter Uncertainty
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The only question is what action the Monetary Policy Committee (MPC) will take after the Financial Policy Committee (FPC) slashed the countercyclical-capital buffer rate for UK exposures to zero from 0.5% of risk-weighted assets.
This move should, according to the bank, raise the capacity for lending to households and businesses by £150 billion. The rate should stay at 0% until at least June 2017, according to officials.
The decision of UK voters to leave the European Union has negatively affected both consumer and business confidence, enhancing the case for interest rates to be cut as soon as next Thursday.
BoE Governor Mark Carney stated in a speech at the end of June that in his view the weakened UK economic outlook will likely require some "easing of monetary policy over the summer."
"There has to be a very good chance that the Bank of England will cut interest rates from 0.50% to 0.25% on Thursday," Howard Archer, chief economist at IHS Economics, wrote in a note on Friday.
In a press conference after the FPC meeting this week, the BoE governor indicated that with the UK voting to leave the EU, the downside risks to the economy are now crystallizing and further policy measures are also expected to be delivered.
"We suspect that the Bank of England will extend sooner or later its Funding for Lending Scheme and it may very well also return to Quantitative Easing, which has been on hold since November 2012 with the stock of purchases at £375 billion. These moves could well be enacted in August," Archer further predicted.
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