Bank of England Interest Rate Cut Forecast : Pound Sterling Outlook Uncertain

July 14, 2016 - Written by David Woodsmith

STORY LINK Bank of England Interest Rate Cut Forecast : Pound Sterling Outlook Uncertain

Sterling is set to slip against peers in the future, should Bank of England (BoE) officials drop further hints that an interest rate cut is incoming.

The Pound has been extremely strong today, on account of the BoE leaving the UK interest rate intact for the first month after 'Brexit'.

Forecast for BoE Rate Cut Sends GBP Exchange Rate Trending Lower

The main event today comes in the form of the latest Bank of England monetary policy announcement. Comments from BoE Governor Mark Carney since the UK’s surprise Brexit vote on 23rd June have galvanised investors’ belief that Britain’s lender of the last resort, which has been in existence since 1694, will opt to trim its benchmark interest rate to a fresh record low. The potential exists that the BoE will reduce rates to a headline-grabbing zero percent, but the general consensus amongst analysts is that a 25 basis point cut to 0.25% is more likely.

Pound Euro Currency Pair Could Drop from Best Levels of 1.20

The Pound Sterling (currency : GBP) lost ground against the other sixteen most actively traded global currencies during yesterday’s afternoon session as institutional investors trimmed their Sterling exposure in anticipating of a loosening of policy from the BoE. The move sent the Pound euro exchange rate from an intraday high of 1.2048 GBP EUR all the way down into the lower part of the 1.1800s. However, some analysts believe that this groupthink from investors may be ill-founded and that a trimming of Base Rate by the Old Lady of Threadneedle Street could perversely work in Sterling’s favour.

Some Analysts Predict Pound Sterling (GBP) Exchange Rates Will Hold Firm

Kallum Pickering of Berenberg took this line in a research note issued yesterday, stating that, ‘when the actual rate cut takes place we wouldn’t be surprised if you didn’t see any changes in market rates because it’s already been priced in.’

Pickering went on to elucidate, suggesting that a maintenance of the current statis from the BoE, in the face of a wave of Brexit negativity, would be seen as a victory. He predicted that, ‘if over the next 12 months lending conditions for the real economy remain unchanged compared to those pre-Brexit that would be a big success for the Bank of England.’

Pickering summed up by asserting that clear leadership was now needed, suggesting that, ‘monetary policy can’t offset political uncertainty and that’s the real thing which is hitting confidence.’ If he is correct in his forecast, then the new UK Prime Minister Theresa May might wish to trigger Article 50 of the Lisbon Treaty sooner rather than later.

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