Bank of England ‘to wait’ on rate cut decision

In normal circumstances, the Bank of England might be close to pumping more stimulus into Britain’s economy, given recent signs of a sharp slowdown in growth and a rise in the number of people out of work.

However, governor Mark Carney and his fellow rate-setters are all expected to take a wait-and-see approach this week, effectively dismissing most of the slowdown as due to temporary jitters before the UK’s historic EU referendum on June 23.

A Reuters poll of economists predicted that the nine members of the Monetary Policy Committee (MPC) will maintain their united front and vote unanimously to keep borrowing costs on hold at their record-low 0.5%.

Alan Clarke, an economist with Scotiabank, said the MPC had previously held its nerve in the face of temporary influences on the inflation outlook.

“Overall, we suspect that the committee will still vote 9-0 in favour of unchanged bank rate at this meeting,” he said. 

“However, our conviction is not that high and the chance of at least one dissent in favour of a rate cut has got to be approaching 50%.”

The Bank of England has already said the lack of clarity about the referendum’s outcome has caused companies to put investment plans on hold.

However, last month it said it would be less sensitive than usual to changes in economic data around the time of the vote.

If UK voters take the historic step of deciding to leave the EU, then the Bank of England might try to offset the expected shock to the economy by cutting interest rates and possibly expanding its £375bn (€474bn) bond-buying programme.

For now, however, economists expect the Bank of England to continue to exclude the impact of an out vote from the projections that underpin its decisions on interest rates.

The MPC is due to publish its latest quarterly forecasts alongside its monthly decision on rates on Thursday.

The drag from uncertainty around the referendum is likely to lead the bank to cut its economic growth forecasts to below UK’s long-run average, economists said.

Reuters


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