Poll: UK to cut rates today to avoid Brexit slump

Britain’s vote to leave the EU means the Bank of England will take borrowing costs to a new low as it makes a pre-emptive strike to try to ward off a recession and to reassure markets, a Reuters poll found.

Only last week, the median in a Reuters poll predicted the Monetary Policy Committee would hold its bank rate at 0.5% at today’s meeting but the latest survey points to a 25 basis point cut.

Earlier this week, bank governor Mark Carney gave another hint more stimulus was on the way, saying a hit to Britain’s economy from last month’s referendum could prompt the bank to act.

“Carney once again signalled the Bank has the tools to respond to economic developments,” said James Knightley at ING.

Thirty-nine of the 60 economists polled said the bank would chop at least 25 basis points from the 0.5% bank rate has sat at since early 2009. Financial markets have almost completely priced in a cut today.

The bank will restart its asset purchases later this year topping up the £375bn (€444bn) programme it wound up in 2012 with another £50bn, the poll found. Only seven expected an increase this week.

The boost from sterling’s plunge to UK exports may well be far less than after similar tumbles in 1992 and 2008.

A fragile world economy, more complex world supply chains and near-zero Bank of England interest rates mean Britain may be less able to take advantage of its more competitive exchange rate.

“Currency devaluation is no panacea. Japan shows that a fall in the currency doesn’t lead you to the promised land of export growth,” said Stephen King, senior economic adviser to HSBC.

Most economists still expect Britain’s economy to slow as a result of Brexit, maybe even slipping into recession next year.

“Exporters need to continue to invest to remain competitive. If Brexit leads to an investment freeze, the fall in the pound might not be enough to boost exports,” Christian Odendahl and John Springford at the Centre for European Reform, a research institute in London, wrote this week.

And a falling pound does not automatically lead to a one-for-one boost to UK exports.

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