Bank of England: rate cut, QE and credit easing in August - ING

James Knightley, Senior Economist at ING, after Mark Carney’s comments, looks for an August rate cut with QE and credit easing.

Key Quotes:

“In Mark Carney’s view “the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer”. We look for an August rate cut with QE and credit easing.”

“Bank of England Governor Mark Carney has just given a speech titled “Uncertainty, the economy and policy”. Within it he has given clear guidance that the Bank is likely to provide more stimulus to offset the drags on the economy from the uncertainty caused by the Brexit vote.”

“He goes onto suggest that while sterling’s fall may help net trade (although the uncertainty over the UK’s trade relationships could offset this), it would also push up the prices of imported goods and services, which will lower real incomes. At the same time, lower investment will mean slower supply growth. Taking this altogether it points to “a materially lower path for growth and a notably higher path for inflation” than previously thought.”

“The BoE next meets on July 14th where they will make an “initial assessment” before having a “full assessment” in the August Inflation Report. Our view is that the Bank is likely to cut interest rates by 25bp at the August MPC meeting and could expand quantitative easing while also expanding credit easing policy measures to try and offset a likely lending slowdown. We have our doubts that this will prevent the UK from slipping into a technical recession in 2017 so we may see a further rate cut taking Bank rate to zero (or fractionally above it) before the end of the year.”