Brexit Fallout: BOE May Cut Interest Rates In August
Most economists expected the Bank of England to react immediately to stabilise the economy after Brexit. But surprise: the nine members of BOE’s Monetary Policy Committee have decided to postpone any action, the Wall Street Journal reports. Here are five takeaways from the session, which discussed the UK’s momentous exit from the EU and its impact on economic growth.
1. After the June 23 vote, investors had been waiting for an interest rate cut, and central banks finally responded with a promise to make cuts in August. Until then, rates remain at a record low of 0.5%, where they have been since March 2009.
2. Many investors were surprised by the committee’s decision, or lack of action. Financial markets expected a response immediately following the Brexit vote.
3. BOE may be looking at more than an interest rate cut to stimulate the economy. Other options could include relieving the BOE’s bond-buying program or extending purchases of corporate assets and debt—though none of these options were discussed in the minutes.
4. Though the BOE’s decision to delay action until August was somewhat disappointing, the greater surprise was that a larger portion of the committee did not vote in favor of action.
5. The committee is still assessing the effect of Brexit on the economy, including the impact of the referendum vote on possible inflation. The committee expects the weakened pound will increase prices in the short term—but the long-term outlook depends on a handful of variables. [WSJ]