Mark Carney looks to calm post EU referendum fears with hints of summer rate cut
Bank of England Governor Mark Carney has hinted that interest rates could be cut further from their historic low of 0.5% in the summer as a result of the vote to leave the European Union.
The Monetary Policy Committee meet on 14th July and the decision to cut rates could be made then.
The news comes as several industry voices have stated in opposition to others, that they have seen no change in business as a result of the vote so far.
Mark Carney said: “Finally, as expected, sterling has depreciated sharply. For given foreign demand, this will mean support to net trade, though this may well be dampened by uncertainty around future trading relationships. A lower exchange rate will also entail higher prices for imported consumer goods, energy and capital goods, and consequently lower real incomes.
“As the MPC said prior to the referendum, the combination of these influences on demand, supply and the exchange rate could lead to a materially lower path for growth and a notably higher path for inflation than set out in the May Inflation Report. In such circumstances, the MPC will face a trade-off between stabilising inflation on the one hand and avoiding undue volatility in output and employment on the other. The implications for monetary policy will depend on the relative magnitudes of these effects.
“In my view, and I am not pre-judging the views of the other independent MPC members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer.
“The Committee will make an initial assessment on 14 July, and a full assessment complete with a new forecast will follow in the August Inflation Report. In August, we will also discuss further the range of instruments at our disposal.
“These judgements will benefit from the Bank’s joined-up approach. For example, the PRA’s direct line of sight of banks, building societies and insurers, and the FPC’s oversight of systemic risks, allows the Bank to understand better the net impact of any monetary actions on financial conditions, and ultimately businesses and households. As we have seen elsewhere, if interest rates are too low (or negative), the hit to bank profitability could perversely reduce credit availability or even increase its overall price.”
The move could stimulate the housing market and property prices as money becomes cheaper, which could work against the negative forces of uncertainty. It should also be noted that the overarching market feature, the chronic shortage of properties, has not changed.
Russel Quirk of online estate agents eMoov said his firm had lost just seven sales of a pipeline of 860, telling Today’s Conveyancer: “We are seeing no relative rise in fall throughs. Sales high (busy in fact). Listings at normal levels”
Peter Ambrose of The Partnership property Solicitors said: “We had read the papers over the weekend and were concerned that the phones would be quiet – we needn’t have worried – our agents reported strong viewing numbers on the Saturday and this resulted in a significant number of offers being accepted and us giving quotes on Monday. We expected a large volume of our clients to withdraw from their purchases but it simply hasn’t happened.
“We are running a large caseload of about 600 cases, many of which are first time buyers, and we have had only TWO cancellations due to the referendum in the last three days which is actually LESS than usual.
“in the last 24 hours we have spoken with over 50 estate agents, who all back up our experience. Naturally people are concerned but this is simply not resulting in deals falling apart. Where people have a genuine need to move then deals are progressing as normal.”