Over to you, Carney – our MPC has voted to cut rates
Mark Carney will reveal today whether the Bank of England will cut interest rates for the first time since March 2009, following the public’s surprise decision to vote for Brexit at the end of last month.
Markets have priced in an 80 per cent chance of a cut to the main bank rate, which currently stands at 0.5 per cent. The nine-strong monetary policy committee (MPC) will announce its decision at noon.
CityAM’s Shadow MPC this morning voted to slash rates by a narrow margin of five votes to four.
Economist Gerard Lyons, a former adviser to new foreign secretary Boris Johnson, said that bank rate should be cut by 0.125 per cent. “Monetary policy is performing an excellent role as the shock absorber for the economy,” said Lyons, who campaigned for Britain to leave the EU.
“An easier monetary policy should be followed by tax cuts and a boost to infrastructure spending.”
Other doves on our committee included high-profile author and economist Vicky Pryce, as well as Berenberg’s Kallum Pickering, Capital Economics’ Paul Hollingsworth, and Ross Walker from RBS. All four favoured a reduction in interest rates to 0.25 per cent.
Pryce went one step further, arguing that the Bank should consider an expansion of its stimulus programme, known as quantitative easing.
Markets have priced in an interest rate hike on several occasions in recent years, but global economic uncertainties, and now the shock from last month’s referendum result, have forced the Bank to look in the opposite direction.
Interest rates last rose nine years ago, since when the credit crunch and subsequent global financial crisis have induced an historic era of ultra-loose monetary policy.
Read more: Can Britain avoid a recession?
“We’ve had two chancellors, three Prime Ministers and two governors of the Bank of England since the last interest rate rise,” said senior analyst Laith Khalaf from Hargreaves Lansdown yesterday.
“Given the current economic outlook, there could well be further changes at the top before we see another interest rate rise.”
CityAM’S SHADOW MONETARY POLICY COMMITTEE – OUR MPC votes 5-4 to cut policy
Guest Chair: Gerard Lyons, Economists for Brexit
Vote: Cut 0.125 per cent
Interest rates need to fall further and stay low. Monetary policy is performing an excellent role as the shock absorber for the economy. Injecting liquidity, cutting capital buffers and a weaker pound make sense. So too does another rate cut. It’s sensible to ease by 0.125 per cent, with further cuts to come. An easier monetary policy should be followed by tax cuts and a boost to infrastructure spending.
James Sproule, Institute of Directors
Vote: Hold
Let Brexit dust settle, there is time to see how business and consumers respond. Cost of capital is not chief business concern.
George Buckley, Deutsche Bank
Vote: Hold
Market moves – lower sterling, rising equities and lower bond yields – are supportive. Further easing may be needed, but can wait.
Paul Hollingsworth, Capital Economics
Vote: Cut 0.25 per cent
The economic outlook has weakened, the governor has signalled that an easing is imminent and markets now expect it.
Kallum Pickering, Berenberg
Vote: Cut 0.25 per cent
The confidence shock after the vote hit near-term demand. Easing will offset a tightening in lending conditions.
Simon Ward, Henderson
Vote: Hold
The MPC needs to balance growth and inflation objectives and should wait for more data and the August Inflation Report analysis.
Vicky Pryce, Cebr adviser
Vote: Cut 0.25 per cent
Drops in consumer and business confidence and investment intentions suggest low if not negative growth ahead.
Adam Chester, Lloyds Bank
Vote: Hold
Although the downside risks to growth may have risen, it is too early to judge the economic impact of the referendum.
Ross Walker, Royal Bank of Scotland
Vote: Cut 0.25 per cent
The likelihood of undershooting inflation in the medium-term warrants pre-emptive policy easing now.