Post-Brexit interest rate cut expected in July

Post-Brexit interest rate cut expected in July

Royal London Asset Management’s economist has predicted an initial cut in the Bank of England (BoE) base rate to 0.25 per cent coming in 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.

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With the BoE’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 would be sufficient to prompt a rate cut in July rather than August.

He argued that the magnitude of interest rate reduction is a moot point, as if rates are cut too far, there will be a knock-on impact on bank profitability, which would result in policy tightening.

Mr Kernohan suspected the effective floor on rates will be 0 per cent to 0.25 per cent, with an initial cut in the base rate to 0.25 per cent expected 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 14 July.