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UK business must wait longer for post-Brexit Bank of England boost UK business must wait longer for post-Brexit Bank of England boost
(about 1 month later)
Britain’s consumers and businesses will have to wait another month for the Bank of England to provide a boost to the ailing post-Brexit economy after Threadneeedle Street decided against an immediate cut in borrowing costs in the wake of last month’s referendum.Britain’s consumers and businesses will have to wait another month for the Bank of England to provide a boost to the ailing post-Brexit economy after Threadneeedle Street decided against an immediate cut in borrowing costs in the wake of last month’s referendum.
The Bank’s nine-strong monetary policy committee confounded City analysts who had widely expected a fall in business and consumer confidence to prompt an immediate cut in interest rates from 0.5% to 0.25%.The Bank’s nine-strong monetary policy committee confounded City analysts who had widely expected a fall in business and consumer confidence to prompt an immediate cut in interest rates from 0.5% to 0.25%.
Related: There’ll be no Brexit emergency budget. But what will Philip Hammond do? | Jonathan Portes
Instead the MPC dropped the broadest of hints that the first cut in interest rates since 2009 would come in August, with a package of measures designed to prevent activity stalling in the second half of 2016.Instead the MPC dropped the broadest of hints that the first cut in interest rates since 2009 would come in August, with a package of measures designed to prevent activity stalling in the second half of 2016.
Minutes of the MPC meeting showed that the majority of members thought there could only be the shortest of delays before action was taken to stimulate activity.Minutes of the MPC meeting showed that the majority of members thought there could only be the shortest of delays before action was taken to stimulate activity.
The Bank also warned that it expects “sizeable falls” in commercial property values in the coming months and also revised down the outlook for house prices. But news that rates had been left on hold prompted a sharp rise in the value of the pound – because lower interest rates tend to weaken currencies. Sterling rose by almost two cents against the US dollar to end the day just above $1.33.The Bank also warned that it expects “sizeable falls” in commercial property values in the coming months and also revised down the outlook for house prices. But news that rates had been left on hold prompted a sharp rise in the value of the pound – because lower interest rates tend to weaken currencies. Sterling rose by almost two cents against the US dollar to end the day just above $1.33.
City experts now predict that August will see the Bank deliver a package that will halve official interest rates to 0.25%, sanction an increase in the money-creating quantitative easing programme, and expand the cut-price loans provided by the government’s Funding for Lending scheme.City experts now predict that August will see the Bank deliver a package that will halve official interest rates to 0.25%, sanction an increase in the money-creating quantitative easing programme, and expand the cut-price loans provided by the government’s Funding for Lending scheme.
“Official data on economic activity covering the period since the referendum are not yet available”, the minutes of the MPC meeting said. “However, there are preliminary signs that the result has affected sentiment among households and companies, with sharp falls in some measures of business and consumer confidence.”“Official data on economic activity covering the period since the referendum are not yet available”, the minutes of the MPC meeting said. “However, there are preliminary signs that the result has affected sentiment among households and companies, with sharp falls in some measures of business and consumer confidence.”
The Bank’s governor, Mark Carney, held his first meeting with the new chancellor, Philip Hammond, before the noon announcement that interest rates were for now being left on hold and that there would be no expansion of the £375bn quantitative easing scheme.The Bank’s governor, Mark Carney, held his first meeting with the new chancellor, Philip Hammond, before the noon announcement that interest rates were for now being left on hold and that there would be no expansion of the £375bn quantitative easing scheme.
Hammond made it clear during his first round of media interviews that he had no intention of delivering a post-Brexit budget but would wait until the Autumn Statement towards the end of the year before outlining the May administration’s plans for tax, public spending and deficit reduction.Hammond made it clear during his first round of media interviews that he had no intention of delivering a post-Brexit budget but would wait until the Autumn Statement towards the end of the year before outlining the May administration’s plans for tax, public spending and deficit reduction.
That puts the onus on the Bank to provide support for the economy once it has completed a comprehensive assessment of the outlook in its quarterly inflation report.That puts the onus on the Bank to provide support for the economy once it has completed a comprehensive assessment of the outlook in its quarterly inflation report.
David Owen, chief European economist at Jefferies International, said there was a “strong case” for Hammond bringing forward the timing of the Autumn Statement to early November to show a more joined up policy response. “What chance the government finances investment projects using infrastructure bonds which the BoE ultimately buys?”David Owen, chief European economist at Jefferies International, said there was a “strong case” for Hammond bringing forward the timing of the Autumn Statement to early November to show a more joined up policy response. “What chance the government finances investment projects using infrastructure bonds which the BoE ultimately buys?”
Speeches from MPC members over the next two weeks will now be pored over for clues as to what the Bank is planning in early August. Only one member, Gertjan Vlieghe, an external member know for his dovish views, voted in favour of an instant response to the Brexit vote.Speeches from MPC members over the next two weeks will now be pored over for clues as to what the Bank is planning in early August. Only one member, Gertjan Vlieghe, an external member know for his dovish views, voted in favour of an instant response to the Brexit vote.
Carney, speaking a week after the shock Brexit vote, had alerted financial markets to the possibility of an immediate rate cut when he said his personal view was “the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer”.Carney, speaking a week after the shock Brexit vote, had alerted financial markets to the possibility of an immediate rate cut when he said his personal view was “the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer”.
Dennis de Jong, managing director at currency broker UFX.com said: “The Bank of England faced its biggest interest rate decision since the aftermath of the 2008 financial crisis today, and its decision against cutting the rate for the first time in more than seven years shows that Mark Carney and co believe the storm can be weathered in the short term.Dennis de Jong, managing director at currency broker UFX.com said: “The Bank of England faced its biggest interest rate decision since the aftermath of the 2008 financial crisis today, and its decision against cutting the rate for the first time in more than seven years shows that Mark Carney and co believe the storm can be weathered in the short term.
“However, the unprecedented uncertainty means we could still see radical steps taken in the coming weeks to ward of a Brexit-induced recession. Desperate times call for desperate measures.”“However, the unprecedented uncertainty means we could still see radical steps taken in the coming weeks to ward of a Brexit-induced recession. Desperate times call for desperate measures.”
The MPC said it recognised that a business and consumer confidence had fallen steeply before and after the vote while house buyers had delayed purchases, especially in London and the south east. Sizeable falls in commercial property prices were expected, it added.The MPC said it recognised that a business and consumer confidence had fallen steeply before and after the vote while house buyers had delayed purchases, especially in London and the south east. Sizeable falls in commercial property prices were expected, it added.