Mark Carney signals Interest rate cuts in July/August

The Bank of England (BoE) is set to unveil interest rate cuts following the UK’s vote out of the EU.

Governor of the BoE, Mark Carney, stated a downturn was on its way, and Britain was already suffering from “economic post-traumatic stress disorder” (1). He also assured that the central bank would take “whatever action is needed to support growth”, which will probably include “some monetary policy easing” in the next few months, in an attempt to reassure the markets and the general public (1).

As a result of his speech, the value of the pound dropped by 1% against the euro and dollar.  Interest rate cut likely to be announced at the next meeting of the Monetary Policy committee in August, with analysts predicting a 25 basis point cut to the interest rate.

Mitul Patel, Head of Interest Rates at Henderson Global Investors, said: “The market now expects interest rates to fall to close to 0%, and while Carney has previously stated a dislike of negative interest rates, nothing can be taken off the table” (2).

Carney further stated in his speech that the UK needs a “comprehensive strategy for engaging with the EU and the rest of the world,” highlighting trade, migration, capital flows and regulations as key areas. “Plan beats no plan,” he said, citing former US Treasury Secretary Tim Geithner (3).

A further decrease in interest rates from already record-low levels of 0.5% will see investments offering a fixed return become more attractive as an investment class. Ten-year gilt yields have fallen below 1% for the first time as investors continue their hunt for yield.

  1. (1) – Carney prepares for ‘economic post-traumatic stress’ – Financial Times
  2. (2) –  Interest rate cut likely after Brexit vote, says Mark Carney – Guardian
  3. (3) – Carney Signals Rate Cuts as Brexit Chaos Engulfs Political Class – Bloomberg