Economists are widely expecting a rate cut whilst the market is currently pricing in around a 75% chance of this.
The data since the Brexit vote coming out of the UK has been so far quite positive, although much of this has yet to take into account the after-effects of the decision to leave. Both the Nationwide and Halifax house price indices beat consensus numbers for their June figures, UK GDP was announced to have held steady at 0.4% for the first quarter and the trade deficit for May fell significantly more than expected to £-9.88bn to name but a few.
Less than two weeks ago Mark Carney announced to the market that some easing “will likely be required over summer” – clearly a key driver of the market’s expectations for a rate cut this week. Without any significant evidence of the much talked about slow-down I believe that it is this expectation of some monetary easing that provides the biggest threat to the markets when the MPC announces their policy decision on Thursday.
Given the already historically low base rate, the BoE have left themselves backed in to a corner with a difficult decision. Hold rates steady and surprise the market or cut rates along with expectations and risk leaving the cupboard bare should a bigger crisis appear around the corner.
12 July 2016
The week in review
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