Investors believe it’s 100% certain the Bank of England will cut rates at its next meeting.
UK interest rates are already at a record low 0.50% but they will sink to 0.25% at the next meeting according to UK interest rate futures.
Analysts also expect the BoE to Slash Growth Targets by Biggest Margin on Record.
Investors believe an interest rate cut is certain, with most analysts expecting rates to be trimmed to 0.25pc, from the current record low of 0.5pc.
Economists believe growth in 2017 will be slashed to less than 1pc, from 2.3pc in May.
A reduction of this magnitude would be the biggest cut to the Bank’s growth projections between consecutive Inflation Report forecasts since it became independent in 1997, surpassing the 0.9 percentage point downgrade in November 2008, after Lehman Brothers collapsed, according to HSBC.
Growth in 2016 is also expected to be trimmed to around 1.5pc, from 2pc in May.
In the same month, Mark Carney, Governor of the Bank, warned that a Brexit vote could push the UK into a technical recession – defined as two quarters of falling economic output.
Andrew Goodwin, lead economist at Oxford Economics, said: “We think the Bank might expect third- quarter growth to be negative, but the shock to then dissipate and the UK to escape a recession, as evidenced by the Lloyds survey where the initial knee-jerk reaction was quite bad, but when people became accustomed to it they realised that business was carrying on.”
A rate cut plus a possible boost to the Bank’s quantitative easing programme is expected after the Monetary Policy Committee said in July that “most” of its nine members expected that policy would be eased in August.
BoE Sure Thing
I would generally be inclined to take the other side of these “sure thing” setups but central banks do not like to disappoint market expectations.
Technical Recession
What’s with this technical recession nonsense. There is either a recession or there isn’t. Two consecutive quarters of negative growth are a sufficient but not necessary condition for a recession in the US.
In any country, two quarters of negative growth is proof of a recession.
Brexit will take the blame, but it’s pretty clear global growth was already cooling.
Spotlight on the British Pound
Despite the alleged certainty that the BoE will cut rates and speculation it will slash growth rates the most on record, the British Pound has stabilized.
A British Pound selloff may very well be over.
Mike “Mish” Shedlock
