The Bank of England (BoE) will cut its reference rate of interest to a new record level (+ 0.25% ) tomorrow, or at least send a strong message to the market that a fall is imminent now that the British electorate voted to leave the EU.
BoE Governor Carney has been front and center since the result of historical Brexit on hand with enough cash if the financial market force to respond to a smooth transition during this period of political unrest and economic. Carney was never shy in telegraphing possible rate cuts intentions and other measures of the "old lady" to lend support to a struggling economy.
Despite glaring openings BoE policymakers U.K. note that lower rate or the perception of a future cut may not necessarily offset the current economic uncertainty following the surprise June 23 results. Nevertheless, "potential" BoE vote of response suggests that British officials continue to see future economic challenges.
Yesterday, Governor Carney said some risks to the financial stability of UK identified before the vote began to materialize, citing pound tumbling (1 , £ 3,271) and a freeze on real estate transactions. Despite being criticized for scaremongering, the governor remains convinced that the Brexit result could throw a cloud of uncertainty over the economy, the slow spending and future investments.
The BoE is more than ready to lend its support this week, however, the smart money is looking to 4th August that the preferred date for injecting the support. Thursday may have come too soon for MPC BoE. It is being suggested that in a number of weeks, the UK responsible would be better equipped with new data and a new batch of quarterly forecasts for growth and inflation to support any change in the current monetary policy .
The "doves" will say that there is little point in delaying the inevitable, especially given signs that the economy was slowing U.K. months before voting. Futures prices suggest that a cut 4 August is a safer choice, Carney and colleagues give sufficient time to assess the situation.
There are limits to what the Bank of England (BoE) may be done to consolidate investor confidence - cutting rates to a new record low (+ 0.25%) and / or increase QE - but will it be enough?
The BoE has no political affiliation; it is a stand alone, impartial institution that can not affect the political evils that the U.K. is experiencing.
Despite Carney widely criticized on his warnings in advance of the referendum that the economic slowdown and turmoil in financial markets will follow the governor remains firm political action is necessary.
The BoE has not changed interest rates in seven years, and he was just 14 months ago that the money markets provided that the BoE would be the first Tier I central banks to raise rates.
How aggressive U.K. officials must follow the negative interest rate policy (NIRP) other European central banks, only time will tell. A deep cut is highly unlikely given the fact that the governor has expressed doubts about the effectiveness of "negative interest rates" in boosting inflation, but a cut is justified, it is just a matter of when?
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