BoE: Carney signals clear intent to ease - MUFG

Derek Halpenny, European Head of GMR at MUFG, notes that the pound fell from over 1.3400 versus the US dollar yesterday in response to the clear signal by Governor Carney that there would be some form of monetary easing over the summer.

Key Quotes

“Governor Carney’s suggestion that the BoE needed to consider moves “over the summer” or between the July and August MPC meetings is in our view an indication that the MPC might not rush into easing at its meeting on 14th July. By giving this strong signal now it provides the MPC with the flexibility to consider circumstances in July before taking action in August without the financial markets responding badly to inaction on 14th July.

Of course they may still act on 14th July but there is perhaps a preference to wait until 4th August when Governor Carney could explain a decision in more detail and with the clarity provided by the updated forecasts based on the Brexit vote from last week. With financial markets more orderly after the initial turmoil following the vote, we expect the BOE to cut Bank Rate by 25bps on 4th August, although there is a clear possibility that the BoE may act at both policy meetings, taking Bank Rate to zero percent by August. We do not expect QE to be part of the initial policy easing phase implemented over the summer.”