The Bank of England (BOE) will hold its Monetary Policy Committee meeting this Thursday and there is a likelihood that a rate cut will be put into consideration after over 7 years of remaining unchanged at record low of 0.5%.
If a rate cut happens, this move will reflect concerns over the U.K. gloomy economic situation with continuous bad news coming in. Recently, first-quarter GDP growth slowed down to 0.4% from 0.6% of the last quarter of 2015. Markit/CIPS manufacturing and service PMI dropped to a 3-year low, especially manufacturing sector saw its activity contract for the first time in 3 years.
This will also mean that the interest rate will move closer to the negative territory to trigger the consideration of implementing negative interest rates from the BOE. Eurozone has seen negative interest rates installed, along with Japan, Sweden and Denmark with a hope to encourage borrowing.
Fear over Brexit is among the issues that makes it difficult for the policymakers as businesses will be likely to hold their investment decisions until after the EU referendum on June 23, especially when the International Monetary Fund has raised its voice that a Brexit is a “real possibility” and could damage on both regional and global scale.
“Uncertainty caused by June’s EU referendum has been widely blamed. But with the economy slackening well before the referendum date was announced, it is difficult to believe that this is the only story. One thing that is clear is that the possibility of a cut in interest rates is looking ever less outlandish,” said Martin Beck at the consultancy Oxford Economics, according to the Guardian.
Rob Wood and Athanasios Vamvakidis at Bank of America Merrill Lynch predicted that at least one of the nine members of the Monetary Policy Committee will vote for cutting rates and traders are pricing in a 35% chance of a rate cut by the end of this year.
The rate decision has been in focus early this week among the Sentifi financial crowd with the Trending Arrow on this event moving upward. Early discussions have also emerged since two weeks ago on the hint of negative interest rates from a member of the BOE.
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