“The more important question is what the Bank will do with quantitative easing. While its QE programme was unchanged today, any form of expansion would have a bigger impact on markets, whether this is in the form of government or corporate bond purchases, or an extension of the Funding for Lending Scheme. There is a package of interventions the Bank could make through QE in addition to cutting rates – we’ll be watching carefully for any indication that it is poised to do so.”
According to Toby Nangle, head of multi-asset allocation for EMEA at Columbia Threadneedle Investments, the monetary policy committee may be particularly wary of triggering inflation at a time of elevated risk for the economy.
“The Bank of England were widely expected to cut interest rates today, with the bank highlighting in its statement its expectation that the economy is slowing, the property market is falling and that inflation is rising, in large part due to the decision to Brexit,” he said. “With measures of uncertainty meaningfully elevated, their outlook for capital spending was also marked down significantly.
“So why not cut rates today to support the economy?,” Nangle said. “In the end it appears that the lack of hard data evidencing economic weakness held them back. Furthermore, there are signs in the minutes that some members appear concerned that they may be drawn into accommodating a stagflationary environment.”
The August decision will be very interesting one, and should give us a much clearer signal on the health of the UK economy.
