The Bank of England (BoE) is laying down the groundwork for a cut in interest rates if the UK quits Europe.
According to the Sunday Times, BoE boss Mark Carney (pictured) has been sounding out the UK’s top banks to determine whether their balance sheets can absorb a rate reduction.
One bank boss told the paper he had been invited to Threadneedle street for an ‘informal discussion’ and that a rate cut was ‘something the bank had been suggesting for some time’.
Carney, who has dubbed the June referendum as the ‘biggest domestic threat’ to financial stability, is expected to offer more insight into how a Brexit could impact the UK in the Bank’s inflation report, scheduled for release later this week.
Interest rates have been rooted at a historic low of 0.5% for more than seven years.
The nine-strong monetary policy committee (MPC) meets later this week and is not expected to make any changes to the base rate.
The minutes of the meeting with be closely analysed to determine whether there are any changes to forecasts.
UK GDP rose at a modest 0.4% in the first quarter on the back of the market turmoil.
April PMIs suggest the UK economy is continuing to struggle, with manufacturing, construction and services all falling. The data has given weight to the MPC doves such as Andy Haldane calling for a cut in rates.
Oxford Economics’ Martin Beck does not think there will be shift in policy until the referendum passes.
However, regardless of the vote he thinks the next move in rates will be a cut.
‘Whether the vote is to ‘remain’ or ‘leave’, that the next move in rates could be down rather than up is looking a less distant possibility,’ Beck said.
Source: New Model Adviser