Today's interest rate decision by the Bank of England may be the first measures to counter the economic shock of Brexit, a base cut of .25% is expected.
Today at 12pm the Monetary Policy Committee (MPC) made up of 9 voting members from the Bank of England, will release their latest interest rate decision. Comments this month from the Governor Mark Carney and other MPC members indicate interest rates will be cut by 25bps. Past history tells us when a central bank cuts its interest rate the currency devalues. The last time the Bank of England cut rates was back in 2011 and the pound devalued by 6%.
Many leading economists predicted a cut last month but this never materialised. However in my opinion, there are two major differences between the two decisions. Firstly, last month UK Prime Minister Theresa May was appointed days before the vote, which gave the Bank of England additional time to assess the economy. Secondly post referendum economic data, in the form of PMI has been released, which has shown a major contraction. Consequently, as economic data has shown contraction, it’s now a good time for the Bank of England to cut rates in line with current market conditions and therefore the pound could lose value.
Shortly after the Monetary Policy Committee announce their decision, Governor Mark Carney will give a statement to the public and answer any questions from the media. An interest rate cut seems almost certain however we are unsure if the Bank of England will add additional stimulus to the UK economy in the form of Quantitative Easing. If this is the case this is when I believe we will see sharp falls. I would strongly recommend any client buying a foreign currency with the pound to speak with your account manager this morning to devise a strategy that works for you.
Todays decision could have a noticeable impact on Sterling, speak to our brokers this morning prior to the release for more information, call us on 01494 725 353.
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