Royal London Asset Management’s economist has predicted an initial cut in the Bank base rate to 0.25 per cent coming over the next couple of months.
Last week Mark Carney, governor of the Bank of England, said the Monetary Policy Committee (MPC) will give an “initial assessment” of the economic situation post the Brexit vote at its July meeting.
The MPC will then discuss the situation further in the run-up to its August Inflation Report.
With the Bank of England’s regional agents already fanning out across the country to assess the impact of Brexit, Ian Kernohan, economist at Royal London Asset Management, said it could well be that this evidence alone will be sufficient to prompt a rate cut in July rather than August.
He said the evidence coming in may mean the BoE does not feel it has to wait for the full set of July survey data to be available in August.
Mr Kernohan argued the magnitude of interest rate reduction is a moot point, since if rates are cut too far, there will be a knock-on impact on bank profitability, which would result in policy tightening.
He suspected the effective floor on rates will be 0 to 0.25 per cent, with an initial cut in the Bank base rate to 0.25 per cent coming over the next couple of months.
Ben Brettell, senior economist at Hargreaves Lansdown, said financial markets are now pricing in a 78 per cent chance a rate cut will happen on Thursday (14 July).
Initially Mr Brettell said August had looked more likely, but with economic data deteriorating and markets still nervous, it now looks probable the MPC will adjudge that immediate action is warranted.
Mr Brettell said: “Since the referendum Mark Carney has shown he’s very much on the front foot trying to deal with the economic implications of Brexit.”
When asked what should investors do to brace themselves for a rate cut, Calum Bennie, savings expert at Scottish Friendly, said cash savers should consider alternatives such as stocks and shares Isas.
Anna Bowes, director at independent savings adviser SavingsChampion.co.uk, suggested savers who are concerned could look to tie up some of their money into fixed rate bonds, in order to hedge against the possibility of a rate cut.
At the very least savers need to move their cash if the rates they are earning become uncompetitive, she stated. “Even in this low interest rate environment, this can really make a difference, especially for those who are sitting in accounts paying paltry rates such as 0.1 per cent.
“The best easy access account is currently paying 1.45 per cent, so that means an extra £135 a year for every £10,000 deposited,” added Ms Bowes.
