Bank of England likely to announce easing package in August meeting

The Bank of England is likely to announce a package of easing measures this week, noted Danske Bank in a research report. The central bank had disappointed a bit during its July’s meeting by keeping its monetary policy on hold. The BoE preannounced its easing possibilities during the July meeting as several members of the Committee had anticipated the easing of monetary policy in August, according to July meeting’s minutes, said Danske Bank.

Almost all of the surveys post Brexit vote, since the July MPC meeting, have been quite subdued, as business sentiment, consumer sentiment and housing market expectations have dropped. The PMIs, most notably, have dropped below 50 underpinning the view that the UK is heading towards a recession in the second half of 2016, stated Danske Bank.

The central bank governor Mark Carney, in May, had stated that the Bank of England is still in the “conventional monetary policy space”. This signifies that the Bank Rate is the first line of defence and that the central bank might lower the rate by 25 basis points to 0.25 percent from 0.5 percent. Also, the UK central bank is also likely to restart its Asset Purchasing Facility program by purchasing sovereign bonds worth an additional GBP 75 billion, according to Danske Bank. The central bank, since January 2009, has purchased GBP 375 billion of gilts under the APF program.

Meanwhile, there is a probability that the Bank of England would loosen its policy via its Funding for Lending Scheme (FLS) in a bid to avert any supply-driven credit tightening and guarantee a proper transmission of monetary policy. Also, with the BoE’s main concern appearing to be focused on investments and the housing market it is expected to most likely choose to concentrate on incentive for SMEs and/or households, noted Danske Bank.

“We expect the BoE to announce that it is on an easing bias, as it stands ready to do more if the economic data continue to be weak”, added Danske Bank.

In the meantime, the UK central bank has mentioned explicitly that it would not bring rates into negative territory.

“While this is no guarantee that rates will never be lowered to negative, it seems that other central banks who already have introduced negative rates, such as the ECB and Bank of Japan (BoJ), have moved away from this path (we do not expect the ECB or BoJ to cut rates further)”, said Danske Bank.