Given that the U.K. is threatened by the impact of Brexit on multiple fronts when the splinter actually comes about, fears are looming large concerning a severe hit to the domestic economy. Against this backdrop, the Bank of England governed by Mark Carney has an unenviable task at hand of delivering on market expectations.
Gird Your Loins for First Cut since 2009
The Bank of England is set to cut its key interest rate for the first time since 2009 as the "Brexit" vote deepened the case for a technical recession.
The widely expected cut, if it materializes, would take the key rate to a fresh record low of 0.25 percent from 0.50 percent. Economists, however, expect the bank to maintain its quantitative easing at GBP 375 billion at this point in time.
The announcement is due at 7.00 am ET.
Minutes, Press Briefing to Follow
The BoE will also publish the minutes of the meeting and the quarterly Inflation Report. Carney is scheduled to hold a press conference at 7.30 am ET.
July Disappointment Lingers
At the July meeting, the BoE refrained from cutting interest rate even as the markets were braced for one.
Only Gertjan Vlieghe, who joined the rate-setting body a year back in place of David Miles, sought a reduction in rate among the nine member monetary policy committee in July. But most MPC members deemed it fit to loosen monetary policy in August.
Economist Take
Paul Hollingsworth & Scott Bowman at Capital Economics expect the BoE to cut the rate by 25 basis points and to expand gilt purchases by GBP 75 billion.
Other options like expansion of the Funding for Lending Scheme, forward guidance and an adjustment to its policy horizon will remain in reserve to be used if needed, economists added.
Rate Cut- May Not Suffice
The National Institute of Economic and Social Research this week said it expects a follow-up 15 basis point reduction in the rate in November after a quarter point-reduction today.
Elsewhere, a group of 35 economists urged the central bank to consider cash handouts to households, dubbed 'helicopter money', to boost the fragile economy.
In a letter, published in the Guardian newspaper, the group said the BoE ought to be allowed radical options such as funding key infrastructure projects directly or pay for direct tax cuts.
Data released since Britons voted to leave the European Union in June portended weakness. Some leading indicators such as private sector activity data pointed to notable contraction by the factory and service sector.
Outlook Dim
The bank is likely to downgrade its GDP forecast today.
The NIESR sees chances of a 'technical' recession in the next 18 months. The economy is forecast to grow 1.7 percent this year, before slowing to just 1 percent in 2017.
In June, inflation was only 0.5 percent. The bank is also set to release the letters between Carney and the Chancellor Philip Hammond, who took charge last month.
by RTT Staff Writer
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