Mark Carney faces rate cut decision

Mark Carney’s third week managing Britain’s response to the economic shock of Brexit has begun.

With UK politics in disarray after it opted to split from the EU, the Bank of England governor has been leading the charge in offering stability.

After boosting liquidity, freeing banks to lend more and signalling a willingness to loosen monetary policy, Mr Carney will in coming days address lawmakers in parliament and oversee the central bank’s first interest-rate decision since the Brexit vote.

As gauges of consumer sentiment and business confidence plummet, the pound trades near a 31-year low, and signs of strains emerge in property funds, the pressure on the governor could not be higher. 

Investors are pricing in about a 78% chance of a rate cut on Thursday, and until then his every word will be scrutinised.

The next few days are “incredibly significant, given all the ructions among politicians generally, and given that the bank has had to step into a policy void and try to steady the ship,” said Chris Hare, an economist at Investec in London and a former Bank of England official. 

“The stakes are really high for Carney and the Monetary Policy Committee, especially given the criticism they got during the Brexit campaign,” he said. 

The focus is on Thursday’s monetary-policy announcement, which the nine-member committee will take without substantial data on the economy’s reaction to Brexit.

Thirty of 54 economists surveyed by Bloomberg predict the benchmark interest rate will be lowered on July 14, with a majority of those seeing a 25 basis-point reduction to 0.25%.

With economists split on whether the Bank of England will act this week, many predict officials could hold fire until the August decision.

“I expect the statement to say something along the lines of, ‘we will monitor and take a more considered view in August’,” said Hetal Mehta, a London-based economist at Legal & General Investment Management.

Mr Carney’s performance so far is already set for scrutiny. He’ll testify at Westminster’s Treasury Select Committee this morning.

The hearing will give pro-Brexit lawmakers including Conservative MP Jacob Rees-Mogg the opportunity to face the governor after several heated exchanges in the run-up to the referendum, when Mr Rees-Mogg said Mr Carney’s comments on the potential economic impact of Brexit were “beneath the dignity of the Bank of England” and that he should be fired.


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