CML expects MPC to ease monetary policy next month

The CML predicts that the Bank of England's MPC will ease monetary policy at next month's meeting.

Related topics:  Finance News
Rozi Jones
21st July 2016
CML
"We expect some form of monetary easing to be undertaken by the Monetary Policy Committee when it meets on 4 August, given the uncertain outlook that has set in after the vote result."

CML senior economist, Mohammad Jamei, said: "We expect some form of monetary easing to be undertaken by the Monetary Policy Committee when it meets on 4 August, given the uncertain outlook that has set in after the vote result."

Despite economists suggesting an 80% probability of a bank rate cut, the MPC voted to keep the base rate at its current historic low of 0.5% this month.

The Bank of England's chief economist, Andy Haldane, has hinted at a rate cut next month, announcing in a speech last week that the MPC should introduce a "package of mutually-complementary monetary policy easing measures" in order to protect the economy and jobs from a downturn.

Haldane said: "This monetary response, if it is to buttress expectations and confidence, needs I think to be delivered promptly as well as muscularly. By promptly I mean next month, when the precise size and extent of the necessary stimulatory measures can be determined as part of the August Inflation Report round."

However Martin Weale, member of the Bank of England's MPC, believes the Committee should "wait for firmer evidence before making any policy change", noting the "absence of any strong arguments for an immediate change".

Weale said: "For there to be a case for easing policy I will need to expect weakness in output to be large enough more than to compensate for any overshoot in inflation on the assumption that policy is unchanged in the near term."

He added that "the immediate aftermath of the referendum has passed with less financial disturbance than might have been feared".

Bank of England research published yesterday supported Weale's view, showing that although business uncertainty rose "markedly" following the EU Referendum, there is "no clear evidence of a sharp general slowing in activity".

Immediately after the Referendum result, the swaps market gave a 50% chance of an interest rate cut in July, a 65% chance of a cut by August, and an 80% chance of a cut by the end of the year.

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