BoA: Bank of England to cut interest rates to zero in November
The BoE is likely to pursue a package of interest rate cuts and quantitative easing in November amid the pandemic and threat of a no-deal Brexit, according to the Bank of America.
The Bank will reduce the rate to zero and could go negative if necessary, Bank of America economists predicted in a report today.
“The BOE has, in our view, no monetary ammunition left if it believes the lower bound for bank rate is the current 0.1%,” the report said. “Downside economic risks lie ahead. With few options left we see the probability of the BoE cutting bank rate negative next year approaching 50%.”
The aggressive package of stimulus will also reportedly include a £100bn extension of asset purchases to run through to the middle of the next year.
The economists also predict the central bank will cut the rate on the BoE’s Term Funding Scheme to below. The programme aims to spur bank loans to smaller firms.
The BoE’s former governor Mark Carney previously ruled out slashing interest rates to zero but the hit to the economy in recent months has prompted a rethink.
Since the start of the coronavirus crisis, the BoE has slashed its main rate to a record low of 0.1 per cent, which has prompted questions about whether it will cut into negative territory.
Current governor Andrew Bailey said in May he was keeping negative interest rates under “active review”. Interest rates influence the cost of bank lending so lower rates stimulate more lending.
CME Group currently predicts the Bank will keep interest rates at 0.25 per cent.
The ongoing effect of the pandemic on the economy has prompted policymakers to review all available stimulus tools. However, BofA economists said the BoE is unlikely to conclude this review at its “placeholder” meeting this week.
However analysts surveyed by Bloomberg anticipate a decision to slow the pace of asset purchases to £4.2bn per week at the meeting on 6 August.