Hint of interest rate cut over summer from Bank of England

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The Bank of England could cut interest rates as early as next month in its bid to support a rocky UK economy, according to Governor Mark Carney

The benchmark interest rate has remained unchanged at a record low of 0.5% since March 2009. This could be announced on 14th July.

Carney noted: “In my view, and I am not pre-judging the views of the other independent Monetary Policy Committee (MPC) members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer.”

The governor accepted there were risks to taking such action. “As we have seen elsewhere, if interest rates are too low – or negative – the hit to bank profitability could perversely reduce credit availability or even increase its overall price.”

He reiterated the BoEwould take “whatever action is needed to support growth”, attaching a caveat that: “Monetary policy cannot immediately or fully offset the economic implications of a large, negative shock. The future potential of this economy and its implications for jobs, real wages and wealth are not the gifts of monetary policy makers.”

Despite a Brexit on the horizon, Carney said the UK has one of the most flexible economies in the world: “The question is not whether the UK will adjust but rather how quickly and how well.”

He said that even before the 23 June vote, the Bank had observed the growing influence of uncertainty on major economic decisions. “Commercial real estate transactions had been cut in half since their peak last year. Residential real estate activity had slowed sharply. Car purchases had gone into reverse. And business investment had fallen for the past two quarters measured.”

Carney said it now seems plausible that uncertainty could prove to be a “more persistent drag” on activity than the UK central bank had anticipated. “Moreover, its effects will be reinforced by tighter financial conditions and possible negative spill-overs to growth in the UK’s major trading partners.”

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Written by: Houseladder

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