This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/2016/jun/30/interest-rate-cut-likely-brexit-bank-of-england-mark-carney

The article has changed 5 times. There is an RSS feed of changes available.

Version 0 Version 1
Interest rate cut likely after Brexit vote, says Mark Carney Interest rate cut likely after Brexit vote, says Mark Carney
(35 minutes later)
The Bank of England is likely to have to cut interest rates over coming months to cushion the blow to the economy from the Brexit vote, its governor, Mark Carney, has said. The Bank of England is likely to have to cut interest rates over the coming months to cushion the blow to the economy from the Brexit vote, its governor, Mark Carney, has said.
Carney used a speech just a week after Britain’s historic vote to leave the EU to reassure business leaders and investors that the Bank’s contingency plans were “working well” and that it was considering more measures to safeguard financial stability. Carney used a speech a week after Britain voted to leave the EU to reassure business leaders and investors that the Bank’s contingency plans were “working well” and that it was considering more measures to safeguard financial stability.
He gave the strongest indication yet that the Bank’s reaction to the market turmoil and uncertainty caused by the Brexit vote would be to cut interest rates from the current record low of 0.5%, perhaps as soon as July.He gave the strongest indication yet that the Bank’s reaction to the market turmoil and uncertainty caused by the Brexit vote would be to cut interest rates from the current record low of 0.5%, perhaps as soon as July.
The pound tumbled by one and a half cents to $1.326 against the US dollar after Carney’s speech on the prospect of a new stimulus package, as traders anticipated a cut in interest rates. The pound tumbled by 1.5¢ to $1.326 against the US dollar following Carney’s speech on the prospect of a new stimulus package, as traders anticipated a cut in rates.
The Bank’s nine-member monetary policy committee (MPC) faces a tradeoff between stabilising inflation – which could be stoked by a weaker pound – and shoring up growth and jobs, Carney said. But he erred on the side of supporting growth with lower borrowing costs. The Bank’s nine-member monetary policy committee faces a tradeoff between stabilising inflation, which could be stoked by a weaker pound, and shoring up growth and jobs, Carney said. But he erred on the side of supporting growth with lower borrowing costs.
“In my view, and I am not pre-judging the views of the other independent MPC members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer,” Carney said in the speech to bankers and business leaders. “In my view, and I am not prejudging the views of the other independent MPC members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer,” Carney said in the speech to bankers and business leaders.
“The committee will make an initial assessment on 14 July, and a full assessment complete with a new forecast will follow in the August inflation report. In August, we will also discuss further the range of instruments at our disposal.” “The committee will make an initial assessment on 14 July and a full assessment complete with a new forecast will follow in the August inflation report. In August, we will also discuss further the range of instruments at our disposal.”
Interest rates have been at 0.5% for more than seven years after they were slashed during the UK’s downturn and the global financial crisis. Before the referendum, economists were forecasting that in the event of a vote to stay, the next move in official interest rates would be up.Interest rates have been at 0.5% for more than seven years after they were slashed during the UK’s downturn and the global financial crisis. Before the referendum, economists were forecasting that in the event of a vote to stay, the next move in official interest rates would be up.
Carney had warned before the referendum that a vote to leave could spark a technical recession, defined as two consecutive quarters of falling output. Carney had warned before the referendum that a vote to leave could cause a technical recession, defined as two consecutive quarters of falling output.
In Thursday’s speech, he avoided the word “recession” but reiterated the Bank’s pre-referendum forecast that a victory for the leave camp could “materially alter the outlook for growth and inflation” with the risk that households and businesses defer investment. In the speech on Thursday, he avoided the word “recession”, but reiterated the Bank’s pre-referendum forecast that a victory for the leave camp could “materially alter the outlook for growth and inflation”, with the risk that households and businesses defer investment.
In the last week, there have already been signs that some companies are delaying or cancelling investment plans. A poll for YouGov found that consumer confidence had dived in the five days since the referendum. In the past week, there have been signs that some companies are delaying or cancelling investment plans. A poll for YouGov found that consumer confidence had dived in the five days since the referendum.
Carney sought to reassure business owners, investors and households that the Bank stood ready to do more to restore confidence, but he also emphasised that there were limits to what a central bank could do.Carney sought to reassure business owners, investors and households that the Bank stood ready to do more to restore confidence, but he also emphasised that there were limits to what a central bank could do.
“Over the coming weeks, the Bank will consider a host of other measures and policies to promote monetary and financial stability. “Over the coming weeks, the Bank will consider a host of other measures and policies to promote monetary and financial stability,” Carney said.
“In short the Bank of England has a plan to achieve our objectives, and by doing so support growth, jobs and wages during a time of considerable uncertainty. “In short, the Bank of England has a plan to achieve our objectives and by doing so support growth, jobs and wages during a time of considerable uncertainty.
“Part of that plan is ruthless truth-telling. And one uncomfortable truth is that there are limits to what the Bank of England can do,” he said. “Part of that plan is ruthless truth telling. And one uncomfortable truth is that there are limits to what the Bank of England can do.”
The Bank could not, he said, immediately or fully offset the economic impact of a large, negative shock.The Bank could not, he said, immediately or fully offset the economic impact of a large, negative shock.
In a nod to the role of government, Carney added: “The future potential of this economy and its implications for jobs, real wages and wealth are not the gifts of monetary policymakers.” In a nod to the role of government, Carney said: “The future potential of this economy and its implications for jobs, real wages and wealth are not the gifts of monetary policymakers.”
Carney also used the speech to announce that the Bank was extending liquidity measures and would now continue to offer its indexed long-term repo (ILTR) operations on a weekly basis until the end of September. Carney also used the speech to announce that the Bank was extending liquidity measures and would continue to offer its indexed long-term repo (ILTR) operations on a weekly basis until the end of September.
Carney stepped in almost immediately as the referendum result became clear last week and sought to calm financial market fears about the impact of the Brexit vote by insisting that Threadneedle Street would take any measures needed to secure economic and financial stability.Carney stepped in almost immediately as the referendum result became clear last week and sought to calm financial market fears about the impact of the Brexit vote by insisting that Threadneedle Street would take any measures needed to secure economic and financial stability.
That morning, with the markets wrongfooted over the Brexit vote, Carney had stressed banks were stronger than before the 2008 financial crisis. But he also spelt out that bank officials could inject an additional £250bn to the system ensure that financial institutions did not run short of cash during the uncertain period ahead. That morning, with the markets wrongfooted over the outcome of the EU referendum, Carney had stressed that banks were stronger than before the 2008 financial crisis. But he also spelled out that bank officials could inject an additional £250bn to the system to ensure that financial institutions did not run short of cash during the uncertain period ahead.
In Thursday’s speech, financial market players are likely to focus on the immediate implications for interest rates and other monetary policy measures such as quantitative easing, whereby the Bank pumps electronic money into the financial system. But Carney also used the address from the Bank’s historic Court Room to take a longer view of the build-up to the referendum and resulting market turmoil. Following the speech on Thursday, financial market players are likely to focus on the immediate implications for interest rates and other monetary policy measures such as quantitative easing, whereby the Bank pumps electronic money into the financial system. But Carney also used the address from the Bank’s Court Room to take a longer view of the build-up to the referendum and resulting market turmoil.
Without referring specifically to the vote, he highlighted a more pronounced focus on inequality as he discussed uncertainty and what he termed “economic post-traumatic stress disorder” among households and businesses.Without referring specifically to the vote, he highlighted a more pronounced focus on inequality as he discussed uncertainty and what he termed “economic post-traumatic stress disorder” among households and businesses.
“Today, uncertainty has meant an inchoate sense of economic insecurity for many people despite generalised economic prosperity. Across the advanced economies, employment appears less secure, wages more subdued, and inequality more pronounced,” Carney said. “Today, uncertainty has meant an inchoate sense of economic insecurity for many people, despite generalised economic prosperity. Across the advanced economies, employment appears less secure, wages more subdued and inequality more pronounced,” Carney said.
Phil Shaw, a UK economist at fund manager Investec, said the governor’s delay of six weeks in publishing the first thorough review into the post-Brexit landscape would leave the City in limbo.
“We remember when Mervyn King said nothing for weeks after Northern Rock went bust and the uncertainty it created,” he said.
Shaw said the Bank was likely to supplement a rate cut with other measures, including an expansion of the funding for lending scheme that supports bank and building society mortgage lending.
“The FLS has been wound down over the last year and I would expect that is ramped up again,” he added.