BoE likely to cut rates by at least 25 bps, says BofA Merrill Lynch
Merrill Lynch said it was looking for a 40 basis points cut, but sees a good change of only 25 basis points, noting that Carney has said he is concerned about taking rates "too low". Still, BofA ML said it was hard to tell how low was "too low".
"Rate setters have already recognised Brexit as a bad economic shock. Plenty of data confirm that view. Mark Carney said easing would probably be required. Even if no data were available, we believe the right action would be to cut: just in case.
"That is zerobound economics: the BoE can hike in the future if it is wrong, but making up for delaying is difficult: ask the ECB. We hear a lot that the BoE may 'save its bullets'. We disagree. If one sees a waterfall downstream, better to start paddling now in case it is a big waterfall. By the time one gets to the edge it may be too late."
Merrill reckoned the BoE will do all its conventional policy in one go. As for the unconventional policy, it expects the Bank to unleash this at the August policy meeting.
It looks for £50bn additional quantitative easing, potentially including private-sector assets and a reboot of the funding for lending scheme.
Merrill Lynch said the UK's decision to leave the EU will likely hurt the economy in the short and long run. ■
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