When will the BoE cut rates?
A rate cut is likely for the BoE...
Monetary policy in the UK has taken a complete 180 ever since a couple months ago when economists were placing bullish bets on when the BoE would raise rates. The impact of Brexit has totally put monetary policy debate on its heels. At this point, easing is imminent. Things will be assessed in July in terms of developments and action will be made in August. However, the time line is still up in the air and don’t count out a rate cut sooner than later. Although the BoE wants a full report with the August inflation report included.
Proponents for a rate cut in July argue that since the BoE has already loaded 250 billion pounds of liquidity into the market and the FPC has lowered the capital buffer from .5% to 0% a July rate cut could be a large possibility. Furthermore, the MPC needs to think about the inflation target in the long term and if members want action than there won’t be much significance to waiting.
The sterling has fallen about 10% since 6/23/16 and Brexit has diminished domestic demand which has stalled spending. The committee doesn’t seem to be in unison and at this point it could continue to divide the MPC.
Those who support a rate cut in August want all the data they can observe and make an informed decision including the PMIs and GDP growth for Q2. Both will prove to be good momentum indicators going into Q3. The August quarterly inflation report could also help as well to determine how the economy is evolving.
I tend to lean on the side with an August rate cut from the BoE, considering the May forecasts aren’t as significant anymore and the need for a post-Brexit forecast before any policy changes are to be made.
