Although it is still too early to tell, it appears as if the Bank of England will cut its rates as of tomorrow. This move should alleviate some concerns regarding a recession, as well as restore some confidence in the markets. For the time being, the BoE needs more stimulus, as the British economy would face significant repercussions otherwise.
Bank of England Will Respond To Economic Developments
It has not been an overly positive week for the British economy so far, and the future isn’t looking much brighter by any means. That being said, the Bank of England has to take preventive measures to ensure there will be no recession. As was to be expected, their course of action involves lowering rates, even though experts predicted stability only a few days ago.
Although it remains to be seen if this plan will go into effect tomorrow, the majority of financial experts seem to feel this way for now. According to a Reuters poll, at least 25 basis points are expected to be axed. This would not impact the financial markets directly, though, as current valuations have factored in a cut already.
This goes to show the economic situation in the UK is far from stable right now. A week ago today, more than two-third of financial experts indicated no changes coming this week. Monetary easing has been on the horizon, but most people expected it to be implemented at a later stage this year.
With the Pound Sterling being the worst-performing currency in the world right now, action has to be taken sooner or later. If the polls are any indication, it is expected the Pound Sterling will drop another 3% in value over the coming weeks. For the Bank of England, the only course of action is reducing rates and purchasing more assets.
If these plans are successful – and that is a big if at this stage – the UK economy should be able to slide by, albeit some economic damage must be endured. That is still better than going through a complete recession, though. But it is still too early for celebrating, as there is still a 50/50 chance the UK economy will go through a recession in the coming twelve months.
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