- JPMorgan’s Flanders says BOE may aim to stimulate U.K. demand
- Governor Mark Carney is set to speak on recent events Thursday
Predictions for a Bank of England interest rate cut have climbed amid market and political turmoil following the U.K.’s vote to leave the European Union. Yet the chief global economist at Europe’s largest bank says expectations may be overdone.
“The Bank of England has had several opportunities to take rates below 0.5 percent in recent years and they’ve never taken it,” HSBC Holdings Plc’s Janet Henry said on a panel at Bloomberg’s European headquarters in London Wednesday. “A move toward zero or negative rates has not gone terribly well for the European Central Bank or the Bank of Japan. And if they need to deliver more stimulus, they can do it through -- if necessary -- another round of quantitative easing.”
With almost three-quarters of economists surveyed by Bloomberg predicting a recession in the U.K., traders are pricing in a 51 percent probability of a rate cut from an already record-low level by the Monetary Policy Committee’s August meeting. That’s up from 15 percent on the day of the referendum.
BOE Governor Mark Carney is set to address members of the press and the financial industry on Thursday as part of his attempts to calm markets and boost confidence. Speaking on television within hours of the referendum results on June 24 as the pound and U.K. stocks tumbled, he said the bank is ready to act to support the financial system and the economy if needed.
Even so, Stephanie Flanders, chief market strategist at JPMorgan Asset Management which oversees $1.7 trillion, sees limits to the types of measures Carney will undertake. She cited his Feb. 26 speech at a meeting of Group of 20 finance ministers and central bankers in Shanghai, where he said nations can’t simply export their problems through currency depreciation and that it’s “critical” that stimulus measures are structured to boost domestic demand.
“I don’t think he said enough that would completely rule out negative rates or a further rate cut but it certainly highlighted that he sees things a bit differently and he would want the focus more on actively raising demand here in the U.K.,” Flanders said at the same event. “I certainly think that they’ll wait to see what the consequences are at least for a few weeks to get a sense of what’s going on in the main economy.”