Bank of Eng­land set to cut rates to record low

The Myanmar Times - - Business -

THE Bank of Eng­land (BoE) is ex­pected to slash in­ter­est rates to a record­low 0.25 per­cent and could pump more stim­u­lus into the econ­omy as it bat­tles the fall­out from Bri­tain’s vote to leave the EU, econ­o­mists say.

The an­nounce­ment, due to­day af­ter the British cen­tral bank’s lat­est mon­e­tary pol­icy meet­ing, would take rates to their low­est level in the BoE’s 322-year his­tory

It would also be the first re­duc­tion since March 2009, when the bank cut to the cur­rent all-time low of 0.50pc – and launched its quan­ti­ta­tive eas­ing (QE) bond-buy­ing pro­gram to stim­u­late lend­ing and growth dur­ing the global fi­nan­cial cri­sis.

“The BoE is widely ex­pected to ease mon­e­tary pol­icy this week in re­sponse to ... Brexit,” said economist Larry Hathe­way at as­set man­ager GAM, adding that in­fla­tion was less likely to be on tar­get due to the weaker eco­nomic out­look.

“We an­tic­i­pate at least a quar­ter­point cut in the base rate, but an ex­pan­sion of as­set pur­chases and a ‘bias to ease’ would not be sur­prises.”

Bright data had showed last week that Bri­tain’s econ­omy ac­cel­er­ated 0.6pc in the sec­ond quar­ter of this year in the run-up to the shock de­ci­sion by vot­ers on June 23 to exit the Euro­pean Union.

How­ever, more re­cent data has in­di­cated that eco­nomic storm clouds are gath­er­ing – and a re­ces­sion could be around the cor­ner.

Pur­chas­ing Man­agers In­dex (PMI) surveys have all sig­nalled sharp drops in con­struc­tion, man­u­fac­tur­ing and pri­vate sec­tor busi­ness for July.

Adding to the gloomy pic­ture is grow­ing ev­i­dence of a fal­ter­ing prop­erty mar­ket.

The BoE flagged last month that it might de­liver an in­ter­est rate cut in Au­gust in re­sponse to the Brexit vote but pol­i­cy­mak­ers did not sig­nal the pre­cise size and na­ture of any stim­u­lus measures.

In July, the BoE had also main­tained the amount of QE cash stim­u­lus pump­ing around the econ­omy at £375 bil­lion (US$497 bil­lion).

“This week’s man­u­fac­tur­ing PMI re­port is the lat­est in a long list of sur­vey data which shows that the vote to leave the EU has caused sig­nif­i­cant un­cer­tainty, and neg­a­tive shock is on the way,” said Har­g­reaves Lansdown economist Ben Bret­tell.

“Prior to the ref­er­en­dum, the UK econ­omy was tick­ing along quite nicely.

“If the UK had voted to re­main in the EU, there is no rea­son to sus­pect this trend would not have con­tin­ued, and as per usual the Bank of Eng­land would now be dis­cussing the likely tim­ing of the first in­ter­est rate rise.

“The Brexit vote has blown that com­pletely out of the wa­ter,” Mr Bret­tell told AFP.

New British Fi­nance Min­is­ter Philip Ham­mond re­cently de­clared that it was up to the BoE to re­spond to the eco­nomic shock­waves aris­ing from Brexit.

Bank gov­er­nor Mark Car­ney has warned that Bri­tain could fall into re­ces­sion as busi­nesses de­lay new projects and axe jobs due to the un­cer­tainty. –

Photo: AFP

Mark Car­ney, gov­er­nor of the Bank of Eng­land, has warned that Bri­tain could fall into re­ces­sion.

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