The Governor of the Bank of England Mark Carney signaled the central bank could cut interest rates in a few months as the institution strive to shield an economy rattled by the shock of Britain exit from the European Union and political conundrum.
The governor made it clear on Thursday that the monetary policy officials won’t hesitate to safeguard the economy or the financial system if needed. He also said the apex bank will now carry out its liquidity auctions on a weekly basis and not monthly, and will consider other measures as well.
“It’s now clear that uncertainty could remain high for a while” Carney said. “The economic outlook has weakened, and necessitate some monetary easing over the summer.”
Chris Hare, an economist at Investec said “Carney is trying to offer a policy backstop that is not coming from elsewhere.” According to Hare “U.K. political uncertainty and lack of clear-cut outlook of post-Brexit, are part of the reasons the governor feels particularly keen to pacify markets.”
The BOE could cut rates by 25 basis points while monitoring its impact on the economy, any failure to effect growth and contain downside risks could see further 25 basis points cut to zero.
If the BOE go ahead and loosen stimulus, it would be its first since 2012 when it last expanded its asset purchase program. While, interest rate has been at a record low of 0.5 percent since March 2009.
In near-term, Hare thinks action could come as the Financial Policy Committee meet on July 5, and monetary stimulus decision would probably be in motion by July 14, in time to be announced at the August 4 meeting, this was after Carney made it clear that he would approached July and August monetary policy as a bit of package and also as meetings.
The pound fell 1.4 percent on Thursday to 1.3246 as of 5:42 p.m. in London. The U.K. 10 year yield bond drop to a record low of 0.86 percent, while FTSE-100 closed at highest since August.
So far, the pound has fallen 11 percent post-Brexit, largely driven by speculations and uncertainties surrounding the shock exit.
“Big moves were to be expected, and there had been a need for the pound to find a new level,” Carney added.