Bank of England likely to further cut bank rate in November

The Bank of England’s policy announcement in August saw the Monetary Policy Committee vote for a multifaceted policy package as a reaction to the altered economic outlook after the Brexit vote. The stimulus package included a 25 basis points reduction in Bank Rate to 0.25 percent, a rise in asset purchases, and a new Term Lending Scheme to help ensure the transmission of policy. The MPC minutes showed that a majority on the committee were already in favour of lowering the rate to its ‘effective’ zero bound during its August meeting.

The central bank has averted specifying the exact level of the lower bound. It indicated that it judges it to be “close to, but a little above zero”.

“Our base scenario sees Bank Rate eased to 10bp at November’s policy meeting, alongside the next update of the Inflation Report projections. On prevailing market pricing, Bank Rate is not expected to return to the previous level of 0.50% until 2023,” said Lloyds Bank in a research note.

Beyond further reductions to the Bank Rate, the BoE Governor Carney has indicated that there is scope to expand all aspects of the stimulus package.

“With the initial £60bn of gilt purchases scheduled to last until February 2017, we consider February’s MPC meeting, alongside the updated Inflation Report projections, as the most likely time to deliver a further expansion of asset purchases,” added Lloyds Bank.