BOE Hints At Rate Cuts In Summer

Mark Carney, the Bank of England Governor in his speech on Thursday said that he was confident in the UK’s ability to successfully adapt to a future out the European Union in a bid to reassure the markets. The BoE Governor said “The UK can handle change.. It has one of the most flexible economies in the world and benefits from a deep reservoir of human capital, world-class infrastructure and the rule of low. The question is not whether the UK will adjust, but how quickly and how well.”

However, he cautioned that growth in the UK could slow down in the coming months and as a result, further interest rate cuts and other measures would be required. But Carney also warned of the risks of cutting interest rates below zero which he said could perversely reduce credit conditions.

The Bank of England maintained its consistent view. Prior to the June 23rd referendum, the Bank of England warned that growth could take a hit as consumers and businesses respond to the heightened uncertainty by cutting back on spending.

The BoE Governor said that in his personal view, the central bank was more likely to cut interest rates over the “summer.” He said that an initial assessment of the economic damage would be made at the BoE’s July meeting, and a full assessment including new forecasts for growth and inflation would be done in August.

Carney said that the central bank also had other tools in place to support the economy and the banking system in what is being translated to as subtle hints of reviving the BoE’s asset purchase program. Carney said that the Financial Stability Committee which is responsible for setting the banking rules could take action when it meets next Tuesday.

Following Carney’s comments, the British pound fell 1.380% against the US dollar while the FTSE100 soared to close the day with 2.27% gains. UK gilts which were also hit by the Brexit vote fell to record lows of 0.882%

 

UK 10-Year Bond Chart