Interest rate cut expected next week

Financial markets are expecting the Bank of England to slash interest rates when they meet next week, in a drive to stimulate the economy after the EU referendum.

The Bank’s rate-setting Monetary Policy Committee (MPC) will announce its latest decision on interest rates on 14 July – and markets put the chances of a cut at 78 per cent, according to data compiled by Hargreaves Lansdown.

Rates have been glued at their record low of 0.5 per cent since March 2009, with governor Mark Carney reluctant to go any lower. However, after the recent vote to leave the EU Carney said he believed interest rates would need to be cut over the summer and the Bank has said it can already see Brexit risks weighing on the economy.

Though it technically has the option to cut rates whenever it wants, it is unusual for the Bank to shift policy in a month which does not align with the publication of the quarterly Inflation Report, which includes Threadneedle Street’s latest forecasts for economic growth, jobs, wages and prices. The next edition is due in August, so a move next week would therefore signify just how drastic Carney believes the situation to be.

A cut in July could pave the way for rates to hit zero later in the summer. Hargreaves Lansdown said markets believe there is a 27 per cent chance of this happening in August and a 34 per cent chance rates will be zero by the end of the year.

Carney has previously been dismissive of more extreme policy options – such as negative interest rates or so-called helicopter money. However, the overnight swaps markets show markets are pricing in an eight per cent chance he will pull the trigger on rates going below zero before Christmas.

Written by: Houseladder