Graeme Wearden 

Bank of England cuts interest rates to ward off Brexit recession – as it happened

UK central bank has cut borrowing costs, boosted its QE scheme, and committed an extra £100bn to encourage banks to lend.
  
  

Businessmen pass red London buses outside the Bank of England in the City of London.
City workers and London buses outside the Bank of England in the City of London. Photograph: Bloomberg/Bloomberg via Getty Images

Closing summary: Bank wields its sledgehammer

After more than seven years of static UK interest rates, the first rate hike or cut was always going to be note-worthy.

But the Bank of England has surpassed expectations today with a quadruple-whammy of measures to prevent the UK falling into recession after the Brexit vote.

Chief economist Andy Haldane had hinted last month that the Bank might do something dramatic today, when he said it was better to use “a sledgehammer to crack a nut” rather than a “a miniature rock hammer to tunnel out of prison”.

And now we know what a sledgehammer looks like. Ergo:

  • Interest rates at a record low of 0.25%, a level not seen in the BoE’s 322-year history.
  • An extra £60bn of newly created money to buy government bonds, drive down gilt yields and force investors into riskier assets
  • A new £100bn scheme to encourage banks to lend cheaply to UK companies
  • A pledge to buy £10bn of corporate debt issued by UK companies who make a genuine contribution to the UK economy.

Governor Mark Carney then delivered a tour de force of a press conference, in which he:

Warned that the decision to leave the European Union was a “regime change”.

By acting early and comprehensively, the MPC can reduceuncertainty, bolster confidence, blunt the slowdown, and supportthe necessary adjustments in the UK economy.

Cut the Bank of England’s growth forecasts. It now expects growth of just 0.8% in 2017, down from 2.3%.

Warned that unemployment would go up over the next two years. That means an extra 250,000 people will lose their jobs.

Hinted that interest rates could be cut further, if the economy continues to deteriorate

Carney then urged banks to pass on the rate cut in full, saying they have “no excuse” for not cutting interest rates.

But as I type, neither Lloyds nor Royal Bank of Scotland have said whether their variable rate mortgages will be cut by 0.25%.

Barclays, Nationwide and Santander have said they’ll pass it on, though.

Governor Carney also warned that savers would receive low interest rates for some time. He blamed global forces pushing down borrowing costs, and argued that the alternative is that more jobs would be lost.

The pound has slumped by 2 cents against the US dollar, and is now trading at $1.311. Shares, though, jumped on the back of the stimulus package - and on hopes that Britain will avoid falling into recession.

Experts are concerned that the rate cut is going to hit pension funds hard, meaning annuities will provide an even lower income when people retire.

And that’s all for tonight. Thanks for reading and commenting. GW

This is really good:

Rating agency Fitch has just warned that today’s stimulus package won’t fully protect the UK economy from the Brexit vote.

It says:

The Bank of England’s (BoE) decision to cut rates, expand its bond buying and set up a new funding scheme for lenders is a proactive policy response to the EU referendum. But it is only likely to cushion, rather than fully offset, the shock to UK growth that June’s Brexit vote will cause, Fitch Ratings says.

The balance sheet expansion goes beyond our expectations and includes innovative measures to mitigate potential unintended consequences of policy easing.

There could be more bad news for savers and pension; Shaun Port, CIO of investment site Nutmeg, reckons rates could be cut again:

Make no mistake, this is a crisis response - especially in view of the zero expected GDP growth forecast for the second half of 2016.

“Today’s rate cut will not be the last if the Bank’s forecasts for growth turn out to be correct.

Our Money editor, Patrick Collinson, writes that today’s rate cut is a big blow to people saving for a pension:

Pension savers could be big losers from the Bank of England rate cut, as critics warned of a “hammer blow” to workplace schemes and forecast that pension payouts would fall to record lows.

Within minutes of the Bank’s decision to cut the base rate to 0.25%, yields on government bonds, otherwise known as gilts, dived to all-time lows.

Companies that still offer final salary pension schemes will as a result see the cost of maintaining them soar. Hymans Robertson, a pensions consultancy, said the rate cut meant a £70bn increase in the amount company schemes needed to meet their commitments to scheme members, to a total of £2.4trn.

“To put this in context, UK GDP currently stands at £1.8trn. This has pushed the aggregate UK [company scheme] deficit up to £945bn – the worst it has ever been,” it said.

European stock markets have just closed for the night, with solid gains across the board.

The Bank of England’s stimulus package has sparked a wave of buying, which pushed the FTSE 100 index up 105 points, or 1.6%, to 6740.

The rally is proof that the Bank of England’s stimulus programme is more wide-ranging than the City expected.

Tony Cross, market analyst at Trustnet Direct, sums up the situation:

All those suggestions that the market had already priced in a rate cut from the Bank of England couldn’t have been further from the mark – yes the MPC took some bold action but the fact that the FTSE-100 is finishing the day over 100 points higher shows just how much of an impact the move had.

Gains amongst the blue chips are eye-catchingly broad-based with Aviva (+6.7%) still leading the charge off the back of more positive news following the acquisition of Friends Life plus word of a dividend hike, whilst Standard Chartered (+5%) continues to feel the benefit of yesterday’s storming return to profit.

Carney: We're watching the banks

Mark Carney is piling pressure on Britain’s commercial banks to pass the rate cut onto consumers, in an interview with Sky News:

As we covered earlier, the governor insisted twice during today’s press conference that banks

This was the key quote:

The banks have no excuse, with today’s announcement, not to pass on cut in bank rate and they should write to their customers and make that point.

But while Barclays and Santander have already pledged to cut mortgage rates, RBS and Lloyds are holding back.....

Updated

Economics professor Mariana Mazzucato tweets that properly targeted government spending, not lower interest rates, is the key to improving the economy.

This is why future pensioners, and savers, are in such a bind:

Updated

Savers must 'reassess' strategy after rate cut

Holly Mackay, founder and MD of Boring Money, is urging savers to be proactive, rather than simply accept even lower returns on their funds:

Anyone with cash savings has to reassess this strategy as interest moves from poor, to dire.

Many Brits have an aversion to the stock market but it’s time to ask if we’re just shooting ourselves in the financial foot. Investing online is cheaper, more reputable and easier to do than ever. Mortgage hunters may find some good deals although some providers have already factored an assumed cut over the summer into existing rates.”

Updated

How pensions have been hammered by low rates

Financial services group Hargreaves Lansdown have sent over a chart that shows, in alarming detail, how pension pots have been hit by record low borrowing costs.

It shows how the purchasing power of a £100,000 annuity has been steadily eroded, meaning that people who retire today get much less than those who retired in 2003:

Tom McPhail, their head of retirement policy, says it isn’t sustainable.

“Monetary policy is proving to be pretty unpleasant medicine for pension schemes. It may be supporting asset values and keeping the economy turning but it is also driving down annuity rates and driving up final salary scheme liabilities.

This means employers are having to pump more and more money into final salary schemes and individuals are having to save more and more into their personal pension if they want to buy an annuity. Too much of this medicine is not healthy for anyone’s finances and for final salary schemes in particular, there is a risk that it may actually be killing the patient. The Government is going to have to intervene soon.”

Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers, believes today’s stimulus package is a real game-changer.

“The announcement today from the Bank of England that interest rates were to be cut was not surprising after much debate and disappointing economic fundamentals in the lead up to and following Brexit. What did surprise was the aggressive package of quantitative easing unveiled, encompassing both government and corporate bonds, and additional term funding for banks. This was along with the indication from Mr Carney in his press conference that negative interest rates are not on the long-term agenda, but we can expect further easing via direct asset purchases.

“This an important change in emphasis and is likely a result of global monetary policy shift we have been witnessing in recent months.

Campaigners who argued, in vain, for Britain to stay in the European Union are arguing that their warnings have been proved accurate.

Chuka Umunna MP, Chair of Vote Leave Watch, says:

“It’s clear that quitting the European Union has been a hammer-blow for working people across Britain. Thanks to the impossible promises of Vote Leave Tories like Boris Johnson, David Davis and Liam Fox people around the country will face job losses, higher prices, and falling pay packets – while they enjoy a promotion and sit around the cabinet table.

“The promises of Tory Leavers that Brexit would lead to higher growth and more jobs have never seemed so hollow. The myths told by senior figures in Theresa May’s new government will result in working people being worse off. They need to be held to account for the damage they have done to our economy.

Three months ago, the Bank of England had expected the UK’s jobless rate to keep falling. Not any more...

Updated

From the City, Conner Campbell of SpreadEx explains how the markets have reacted to today’s news:

Well it looks like the Bank of England certainly delivered, at least from the market’s points of view, satisfying both parts of its ‘Super Thursday’ moniker for the first time since the title’s inception.

So, to the nuts and bolts of what the central bank announced this afternoon: a unanimous decision saw the headline interest rate cut from 0.5% to 0.25%, while everyone but Kristin Forbes voted for up to £10 billion in corporate bond purchases. The most controversial step was the £60 billion expansion (to £435 billion) of the current Q3 programme, an expansion opposed by Forbes, Ian McCafferty and Martin Weale. The MPC also unveiled a new £100 billion ‘term funding scheme’ designed to encourage banks to lend.

Carney claimed that there was a ‘clear case’ to act now, with the week’s woeful PMIs joined by fresh forecasts from the BoE that 250,000 people stand to lose their jobs post-Brexit. The Bank also now expects the UK economy to grow by a meagre 0.8% next year (against the 2.3% previously estimated), with inflation set to jump to 0.8% in 2016 and 1.9% in 2017.

The news saw the markets behave just as you would expect; the FTSE surged 1.4%, climbing back above 6700 in the process, while the pound plunged by the same amount against both the dollar and the euro. What is interesting, however, is that this still leaves both instruments within the same trading brackets they have been bouncing around for the last few weeks, reflecting, perhaps, the extent to which today’s action from Carney and co. was expected. It also doesn’t necessarily give either the UK index or sterling any fresh direction for the coming weeks and months, leaving both at the mercy of the next wave of Brexit-impacted data.

Barclays is passing today’s interest rate cut onto mortgage customers in full.

It says:

“Customers with Barclays Bank Base Rate Tracker mortgages and customers on the Barclays Standard Variable Rate will see their rates reduce by 0.25%.

We will provide advance notification to those customers whose mortgage payments will change.”

But the bank is also hinting that savers will take a hit.....

“Our savings rates are currently under review following the reduction to the Bank of England Base Rate. Once a decision has been made, we will contact the relevant customers to let them know what the changes mean for them, providing appropriate time for them to consider their options before changes come into effect.”

Hammond: Bank is protecting the economy from Brexit process

Chancellor Philip Hammond has told Sky News that today’s stimulus package should mean fewer people lose their jobs in the months ahead, as the Brexit process unfolds.

Hammond says:

We are determined to build an economy that works for everyone. Right now we are trying to protect jobs and economic growth.

The measure that have been taken today are designed to ensure that any increase in unemployment as a result of the economic slowdown is kept to the absolute minimum possible.

And to support economic growth through the next 18 months, two years, as we face this period of uncertainty as we negotiate our exit from the European Union.

Here’s our news story about how two of Britain’s biggest banks haven’t, yet, agreed to pass on today’s rate cut in full:

Larry Elliott, our economics editor, says Mark Carney has taken an “all action” approach to fighting a Brexit-induced recession.

[The Bank] was slow to react to the great recession of 2008 and 2009, and was not going to be accused of making the same mistake twice. The risks of doing nothing were higher than the risks of providing oodles of fresh stimulus.

The backdrop to the four-part package is the assumption that there is going to be a marked slowdown in activity as a result of the 23 June referendum. Recession is avoided, but only just and only because the Bank’s nine-strong monetary policy committee (MPC) assumes that lower interest rates, a new scheme to encourage commercial banks to pass on lower borrowing costs and £70bn worth of additional money creation will boost activity over the coming months and years.

If you’re just tuning in, here’s our news story about the Bank of England’s historic rate cut:

Here’s our explanation about quantitative easing - one of the four pillars of today’s stimulus package.

And here’s our Q&A about the rate cut:

UK borrowing costs hit record lows

UK government bonds are also soaring, following the news that the Bank of England will buy another £60bn of gilts.

This has driven down the interest rate on 10-year gilts down to 0.68%, from 0.78%.

That means the UK government can borrow cheaper than ever before - making it a great time to borrow to invest.....

Shares surge, but pound slumps.

The London stock market has surged since the Bank of England announced its new stimulus package.

The FTSE 100 index has jumped by 97 points, or 1.5%. Financial stocks are leading the rally, with Aviva up 7%, Standard Chartered up 5.3%, and Prudential gaining 3.5%.

And the smaller FTSE index, which is more focused on the UK economy, has gained 1.3%.

The pound continues to slide, though; sterling has lost two whole cents against the US dollar to $1.314.

That’s a chunky fall, but still higher than immediately after the Brexit vote.

Lloyds Banking Group also hasn’t decided whether to pass on today’s rate cut in full.

It says tracker mortgages *will* be cut, but it hasn’t decided what to do about its standard variable rate.

Here’s the statement:

The Bank of England base rate is only one of a number of factors that we take into account when reviewing interest rates. The 0.25% reduction will form part of the ongoing rate reviews across our product ranges. All variable rate products that track the Bank of England base rate will be reduced by 0.25% from September.

Updated

Santander says it is passing the interest rate on to customers in full:

From the beginning of September 2016, Santander’s Standard Variable Rate will be 4.49%.

The Alliance & Leicester Standard Variable Rate on mortgages will also be reduced by 0.25% to 4.74%.

Mark Carney’s stern warning to Britain’s banks to pass on today’s rate cut may have fallen on deaf ears at Royal Bank of Scotland.

Even as the Bank of England governor was telling reporters that there is ‘no excuse’ not to pass the cut on, RBS - bailed out by the taxpayer in 2008 - was quick to announce it had not decided whether to do so yet.

Its NatWest arm has 17% of its customers on standard variable rate [SVR] mortgages. Here’s the statement:

The Bank of England base rate has reduced today from 0.5% to 0.25%.

Existing NatWest customers with Fixed Rate products will not see a change in their rate during their fixed rate period.

We are currently reviewing whether we will make any changes to Variable Rate products and will provide an update in the near future.

For those customers on Base Rate Linked products, we will reduce their rate by 0.25%.

And that’s the end of Mark Carney’s press conference. I’ll pull a summary together shortly.

Former chancellor George Osborne has already given his verdict:

Updated

Carney: Can't imagine how helicopter money would help

Q: What’s your view of helicopter money? [IE, trying to stimulate the economy by handing cash directly to the public].

Mark Carney deploys his most dismissive tone, saying he doesn’t see the merit in the idea...and “cannot conceive” a situation where such a “flight of fantasy” would help the UK.

Q: Can Mark Carney reassure investors about his commitment to steering the UK economy through the troubled times ahead, by promising to stay until 2021?

[Background: Carney signed up to a 5-year term in 2013, but could potentially serve eight years].

Carney says it’s an “absolute privilege” to serve at the Bank of England. But he’s been working flat out for months, and hasn’t had a moment to reflect on the issue.

Broadbent: House prices expected to fall next year

Q: What is the Bank of England’s forecast for house prices?

Deputy governor Ben Broadbent says any fan chart on house price would be as wide as any other fan chart it produces (ie, it doesn’t really know).

But the central case is that house prices experience a “small decline” next year, but then pick up again as average wages rise.

Ben Chu of the Independent tries to bowl Mark Carney out with a great question.

He reminds the governor that he was criticised for forecasting a recession if Britain voted to leave the EU, because his forecasts didn’t include a post-Brexit stimulus programme (as we’ve seen today). So, does today’s announcement vindicate them?

Carney plays a straight bat (ice hockey stick?), pointing out that the Bank’s ‘fan charts’ show a range of possibilities for growth (including a recession).

Updated

Carney repeats that banks have ‘no excuse’ not to pass today’s interest rate cut onto customers.

He adde that he doesn’t want to see UK bank deposit rates fall below zero.

Q: Did you only cut interest rates by a quarter-point because you wanted a unanimous decision?

Carney says the Bank didn’t cut rates deeper, because it was also able to provide stimulus in other ways.

If the economic data continues to deteriorate, a further rate cut is possible in the months ahead.

Carney has drawn the battle lines -- with savers on one side, and the unemployed on the other.

Q: What do you want small savers to do with their money?

Carney sweeps aside the idea that the Bank of England is treating savers unfairly.

Despite this stimulus package, the Bank expects unemployment to rise by 250,000, so it is right to take action now, the governor declares.

Should we have more people lose their jobs, to target a different part of the economy?

Should we have more uncertainty?

We understand the challenge the UK faces... this package lessens the challenge.

Updated

Q: What’s your message to critics who say this package is excessive?

This is the appropriate response to the conditions that the UK economy finds itself in, Carney replies. There is a “clear case” to act now, when the economy needs it.

Ben Broadbent, deputy governor, then takes the mike. He points to the latest Markit PMIs, which suggest the economy is now contracting. So it is “not premature” to act now.

Asked about the Brexit vote, Mark Carney says that Britain has suffered a “very large” shock.

Risks are now manifesting themselves in a wide range of indicators, he adds.

Our economics editor, Larry Elliott, asks Carney about calls for the UK government to boost its infrastructure spending.

Carney says he has discussed various policy actions with chancellor Philip Hammond, and the Treasury is “fully informed” about the Bank’s thinking, and what it can do to support the economy.

Carney fires a warning shot at the banking sector - they have ‘no excuse’ not to pass this rate cut on. So, expect mortgage rates to fall.

Updated

Q: Could the Bank of England cut interest rates to negative in future?

Carney agrees that he’s not a big fan of negative interest rates. Other stimulus options are better.

The BoE still thinks that the ‘zero lower bound’ is just above zero, he adds (meaning rates couldn’t be cut below 0.0%)

Q: What’s your message to savers, who must look at today’s decision and wonder if it’s worth putting any money aside?

We think about this all the time, Carney says. But he offers little immediate relief:

Saving rates are probably going to be low for some time, both in the UK and beyond.....

That’s the price of protecting the economy, the governor adds:

We will ensure for savers, for pensioners, for pension funds.. that the economy will grow, that there are fewer unemployed, and we adjust to this new equilibrium faster than would be the case.

Updated

Q: Funding constraints aren’t a big problem today, so why have you allocated £100bn to encourage bank lending?

Carney says it’s important to take worries about credit availability off the table. Firms and households should not face the credit constraint suffered after the 2008 financial crisis.

Q: You’re not forecasting a recession next year - is that because of the new stimulus package?

Carney confirms that the Bank expects only limited growth in 2017, but not a recession.

Today’s package means the Bank has “improved the economic prospects of the country”,and should mean unemployment is lower, output is higher, and growth is stronger than would otherwise be the case.

Updated

Onto questions, starting with the Financial Times...

Q: You’ve said that monetary policy can only mitigate the impact of Brexit, so what should the government do?

Carney says that the government has already identified the areas that need to be addressed, such as boosting productivity. Monetary policy cannot tackle structural problems in an economy.

Updated

Carney: We could cut rates further

All of the elements in this package can be increased, Mark Carney declares.

Interest rates could be cut further, the £100bn funding for lending scheme could be increased, as could the QE and corporate bond purchase scheme.

And then he reveals that a majority of MPC members would support a further rate cut, if the forecasts in today’s inflation report are accurate.

Carney: We've launched a timely, coherent and comprehensive package

Today’s package of measures are “timely, coherent and comprehensive”, says Mark Carney.

Half of all mortgages are on floating rates, as are four-fifths of bank loans, so the cut in interest rates will be felt immediately.

The Bank of England is also determined that the stimulus gets to the real economy, rather than being diluted through the financial sector.

Buying corporate bonds will ease the funding cost of UK companies, he continues.

And buying more government bonds through QE will drive down bond yields, and push investors towards riskier assets (as they’ll get an even smaller return on UK gilts).

Updated

The Bank of England is expecting Britain’s unemployment rate to rise to 5.5% by 2018.

Mark Carney says the Bank is aiming to “reduce uncertainty, and blunt the slowdown” caused by the Brexit vote.

But monetary policy has its limits, he warns. And the fall in sterling will not fully offset the “substantially weaker” private sector demand.

You can watch Mark Carney’s press conference online here (right-click to open in a new tab).

It’s also being streamed on Sky News and BBC News.

BoE Press conference begins

Governor Mark Carney’s press conference is starting now.

He begins by touching on the Brexit vote, saying:

The UK can handle change. It has one of the most flexible economies in the world. It has a deep reserve of human capital.... and its people are admired the world over for their strength under adversity.

Carney confirms that the Bank has cut interest rates to record lows, boosted its asset purchase scheme by £60bn, decided to start buying up to £10bn of corporate bonds each month, and created a new £100bn funding for lending scheme.

He than warns that:

The economic outlook has changed markedly.... and are consistent with the risks which the MPC saw before the vote.

BoE: Brexit has hurt UK economy

The minutes of today’s meeting show that the Bank of England believes the decision to vote to leave the EU has hurt the economy.

It says.

Following the United Kingdom’s vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly.

The fall in sterling is likely to push up on CPI inflation in the near term, hastening its return to the 2% target and probably causing it to rise above the target in the latter part of the MPC’s forecast period, before the exchange rate effect dissipates thereafter. In the real economy, although the weaker medium-term outlook for activity largely reflects a downward revision to the economy’s supply capacity, near-term weakness in demand is likely to open up a margin of spare capacity, including an eventual rise in unemployment. Consistent with this, recent surveys of business activity, confidence and optimism suggest that the United Kingdom is likely to see little growth in GDP in the second half of this year.

You can read the full minutes here.

The British Bankers Association says today’s decisions show that the Bank of England is taking a “whatever it takes” approach to stabilising the economy.

Bank executives will be relieved that rates haven’t been cut lower than 0.25%, and will surely welcome the promise of £100bn of fresh lending support.

Bank shares are rallying, with HSBC up almost 2.8%.

The chancellor, Philip Hammond, has welcomed the Bank of England’s moves, and approved the increase to the Bank’s Quantitative Easing scheme.

Bank of England stimulus package - the key points

• A cut in official interest rates to 0.25%. The Bank last cut interest rates in March 2009 in a bid to cushion the UK economy from the global financial crisis

• Plans to pump an additional £60bn in electronic cash into the economy to buy government bonds, extending the existing quantitative easing (QE) programme to £435bn in total

• Another £10bn in electronic cash will be created to buy corporate bonds from firms “making a material contribution to the UK economy”

• A new scheme to provide as much as £100bn of new funding to banks to help them pass on the base rate cut to the real economy. Under this new “term funding scheme” (TFS) the Bank will create new money to provide loans to banks at interest rates close to the base rate of 0.25%

Bank policymakers split over stimulus programme.

The Bank’s Monetary Policy Committee voted 9-0 to cut interest rates today.

However, Kristin Forbes opposed the plan to buy £10bn of corporate debt each month, meaning that vote was 8-1.

And the decision to boost quantitative easing was only carried by 6 votes to 3, with Forbes, Ian McCafferty and Martin Weale all voted against it.

The BoE has hiked its inflation forecasts, as well as cutting its growth forecasts.

It now believes prices will be rising by more than 2% in 2018, as the weak pound pushes up the cost of imported goods.

What will record low interest rates mean to you? Hilary Osborne explains all here:

The Bank of England has also decided to start buying £10bn of corporate bonds (debt issued by UK companies) with newly created money.

Similar measures are already underway in the eurozone, though the ECB’s QE scheme.

Pound plunges

Sterling has slumped by more than 1.5 cents against the US dollar in the last few minutes, to $1.315.

That suggests that the Bank of England has gone further than traders had expected.

Updated

The BoE has also launched a new programme, worth £100bn, to encourage Britain’s banks to lend to businesses and consumers.

That’s another attempt to ward off a recession.

The Bank of England has also slashed its growth forecasts, following the UK referendum vote.

It now expects growth of just 0.8% next year, down from 2.3% in its May forecasts.

It’s official:

Bank of England boosts QE

The Bank of England has also boosted its quantitative easing programme by £60bn.

That means it will be buying bonds from investors banks , with newly created money, in an attempt to stimulate the economy.

Updated

BANK OF ENGLAND INTEREST RATE DECISION

The Bank of England has cut UK interest rates to 0.25% at today’s meeting.

That’s a new record low, and shows that the central bank is trying to protect the economy from a downturn by easing monetary policy.

More to follow....

Hold onto your hats, folks.... it’s just three minutes until the most eagerly awaited Bank of England policy decision since the financial crisis was raging.

We should get the monetary policy decision at noon sharp, but must wait 30 minutes until Mary Carney’s press conference.

Updated

Jeremy Cook of World First, the currency trading firm, is bracing for action in 10 minutes....

City experts are still making forecasts, as the clock ticks towards noon.

ABN Amro’s Nick Kounis predicts a £150bn boost to quantitative easing and a quarter-point rate cut:

But IG’s Chris Beauchamp points out that the Bank of England could surprise us...

Given last month’s distinctly uneventful meeting, plus the range of other options open to Mark Carney and his team, we should be careful before assuming a course of action is pre-determined. Mr Carney, after all, is still known as the ‘unreliable boyfriend’.

The pound has now recovered its earlier losses, and is hovering unchanged at $1.333 against the US dollar.

Trader are worrying that the Bank of England may be more ‘hawkish’ than forecast. You can expect sterling to soar if rates are unexpectedly left on hold in 30 minutes....

Royal Bank of Canada’s economics team have sent over a useful chart, showing how the financial markets have already priced in an interest rate cut:

SONIA is the overnight interest rate charged on deposits held in sterling. As you can see, the blue line shows how it is expected to drop to just 0.1% by early 2017.

Here’s a handy reminder of the recent disappointing economic data, which has put pressure on the Bank of England to consider a rate cut today:

Mark Carney could use his press conference to put pressure on Westminster politicians to boost government spending (as Labour’s John McDonnell argued for this morning):

Lizzy Anderson of the Independent flags up how savers have suffered from seven years of record low borrowing costs:

The counterfactual, of course, is that tighter monetary policy would have hurt the economy, driving more companies to the wall and ultimately hurting the value of assets owned by savers.

ONE HOUR TO GO, until the Bank of England reveals if interest rates are being cut to fresh record lows.

The slump in sterling since the Brexit vote is another reason to NOT cut interest rates today, argues economist Shaun Richards:

Just because there is pressure to “do something” does not mean that “something” will “do”.

I would vote for unchanged policy as I waited to see how we respond to the lower value of the UK Pound,which on the old rule of thumb has provided a move equivalent to a 2% Bank Rate cut.

More here:

Updated

Six weeks ago, Britain was heading to the polls in the EU referendum.

An awful lot has changed since, but it’s too early to know the full economic impact of the Brexit vote. So while recent data has suggested a contraction in July, the Bank of England may not feel compelled to ease monetary policy dramatically today.

Alan Wilde, Head of Fixed Income, Global, at Baring Asset Management, explains why:

When the MPC met in July, Carney seemed to pre-commit to an easing of policy in August, but there was then a huge amount of economic and political uncertainty.

Meantime, we have a new PM and Government and markets are calm. The risk today is that markets are anticipating too much in the way of immediate easing when the MPC may wish to keep some powder dry to act in the future – should circumstances demand they do so.

The UK economics press pack are converging on the Bank of England.

They’ll soon be locked away, and given an early sight at today’s inflation report, and the interest rate decision.

HSBC’s Liz Martins predicts a rate cut, but no fresh quantitative easing, in response to recent disappointing economic data.

Mark Carney's biggest decision since becoming governor

Mark Carney was dubbed the “outstanding central banker of his generation” when he was surprisingly appointed as BoE governor in late 2012.

And events like today will test Carney’s mettle, as Eric Lonergan, macro investment fund manager at M&G Investments, explains:

“Today’s Monetary Policy Committee meeting is extremely important and the range of potential outcomes is far wider than market commentators are suggesting. This will be the first serious decision Mark Carney has made since becoming Governor – and we will find out whether he is conventional and timid, or innovative and bold.

“The markets are generally expecting a conventional and relatively dull decision: a cut in base rates of 25bps and additional QE. This may be the case but many other outcomes are possible; for example the cut in interest rates could be much more extreme at 75bps, along with the introduction of tiered reserves, as Japan has done. Alternatively, there could be no change in rates but the introduction of a ‘helicopter money’ programme in coordination with the Treasury.

“The effects of the decision could be of global relevance – particularly if there is a major innovation in policy.

Updated

A few economists are predicting that the Bank of England will resist the clamour to cut interest rates today:

There’s an edgy calm in the London stock market this morning.

The FTSE 100 index has dropped by a modest 8 points, to 6626, as investors count down towards the Bank of England decision at noon.

Augustin Eden, research analyst at Accendo Markets, says traders are wondering how aggressive the Bank will be today:

Official forecasts are now for a 25bp interest rate cut and no change in the central bank’s QE programme. However many are saying the BoE should throw the kitchen sink at what might after all turn out to be a post-Brexit economic recession, before it happens.

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Mark Wilson, the boss of insurance group Aviva, is hoping (in vain) that the BoE leaves interest rates on hold.

Record low borrowing costs are already causing headaches in the financial sector, as they’ve driven down the rate of return on government bonds (which is particularly awkward for pension funds).

Fred Ducrozet, economist at Swiss bank Pictet, predicts that the Bank of England will launch a major, three-pronged stimulus programme today.

He’s forecasting that rates would be slashed to just 0.1%, alongside a new funding for lending push and £50bn of new money pumped into the system via quantitative easing.

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A Bloomberg poll of 52 economists has found that 50 expect a quarter-point interest rate cut today:

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City investors have already bet against the pound in record numbers, in anticipation of a rate cut today, as this chart from Reuters shows:

McDonnell: Government must ease fiscal policy now

John McDonnell, Labour’s shadow chancellor, is also predicting an interest rate cut at noon.

He tells the Today Programme that “a small cut is almost inevitable now”, given the worrying signs from the UK economy.

McDonnell backs Danny Blanchflower’s call for a VAT cut, arguing:

It’s a very creative idea - we need a stimulus like that.

But McDonnell insists that the UK economy can’t be healed simply through monetary policy. Fiscal policy (government spending) needs to be deployed too.

I want to see the government now looking at its investment stratetegy

Hammond, the chancellor, has said he’s not going reset the government’s fiscal rule or its economic stratedy until the Autumn. And I think that’s too late. We need action now.

Businesses are holding off investment decisions because they’re getting the “wrong signals” from government, and we can’t wait until the Autumn Statement to act, McDonnell adds.

He wants to take advantage of Britain’s current record low borrowing costs, to borrow an extra £250bn for investment plus £100bn to fund a National Investment Bank. That Bank could then “lever in” £250bn of private sector cash, to pay for investment projects.

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Blanchflower: Rate cut is 'almost inevitable'

Danny Blanchflower, economics professor and former member of the Bank’s monetary policy committee, reckons an interest rate cut is a nailed-on certainty.

Speaking to the Today programme, he says:

It’s almost inevitable that it will be at least a cut of 25 basis points. The question is will it be more?

Markets don’t like surprises, and everyone is expecting it.

The data worsened a lot since the last meeting [in July]. So the expectation is, and I’m pretty sure that the members of Committee will sit there and think ‘everyone thinks we’re going to go, I think we’re going to have to’.

Blanchflower also argues that there are similarities with 2008 (when he served on the MPC), when the Bank eased monetary policy dramatically.

If the economic data continues to worsen quickly, he says, we could get several episodes of action.

Q: Could that include negative interest rates?

Every other central bank in Europe have negative rates of about 0.5%, and Japan does too.

So it could happen - not at today’s meeting, but I don’t rule it out.

Blanchflower also believes that the government needs to relax fiscal policy, including cutting VAT by 5 percentage points (from 20% to 15%).

The pound is weakening in early trading, as City traders anticipate an interest rate cut at noon.

Sterling is down around 0.3% against the US dollar at $1.328.

Our economics editor, Larry Elliott, has rummaged around in the Bank of England’s arsenal to find the weapons at its disposal today:

They are:

  • Option 1: do nothing
  • Option 2: cut interest rates from 0.5% to 0.25%
  • Option 3: expansion of the funding for lending scheme
  • Option 4: expansion of quantitative easing
  • Option 5: forward guidance
  • Option 6: people’s QE/helicopter money

Larry expects a quarter-point cut, plus a new funding for lending scheme and perhaps QE as well.

The Agenda: Bank of England Super Thursday

Good morning.

Has the moment finally come? For the first time in over seven years, British savers and borrowers could actually see an interest rate cut today, as policymakers try to ward off a recession.

Over in the City of London, the Bank of England is putting the finishing touches to its latest quarterly inflation report. It’s the Bank’s first major policy decision since Britain voted to leave the EU in June, and the stakes are high.

Some economists expect the Bank to announce a significant stimulus package today, to response to signs that the UK economy has slowed sharply in the last six weeks

This could include slashing borrowing costs to fresh record lows, down from 0.5%. We could also get a new bout of quantitative easing – creating new money to buy government bonds – and perhaps fresh measures to encourage bank lending as well.

As Investec economist Philip Shaw argues:

“There is enough evidence on the negative shock to the economy that some easing is justified.”

That evidence includes new business surveys showing that the UK economy appears to be shrinking by around 0.4%, as orders drop and confidence wanes.

This would be the first interest rate cut since the depths of the financial crisis, back in the days when the collapse of Lehman Brothers provoked market mayhem and a global downturn.

On the other hand.... the Bank might decide to hold fire until September. That would give more time to assess the economic situation, and see how the government responds to the Brexit vote.

That would disappoint many in the City, and could provoke some wild swings the markets.

So either way, it’s going to be a pretty dramatic day. The new quarterly inflation report should also be fascinating, as the Bank is likely to slash its growth forecasts following the EU referendum vote.

Here’s the timings:

  • 12pm: Bank announces interest rate decision.
  • 12pm: Quarterly inflation report publishes
  • 12.30pm: Governor Mark Carney’s press conference begins

We’ll be tracking all the build-up to the big decision at noon, followed by instant analysis and reaction as the news unfolds.

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