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You can find the current article at its original source at https://www.theguardian.com/business/commentisfree/2016/jul/14/bank-of-england-keeps-cool-head-amid-rate-hysteria
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| Bank of England keeps cool head amid rate hysteria | Bank of England keeps cool head amid rate hysteria |
| (35 minutes later) | |
| It would have been the easiest thing in the world for the Bank of England to cut interest rates at the first meeting of its monetary policy committee since the Brexit vote three weeks ago. | It would have been the easiest thing in the world for the Bank of England to cut interest rates at the first meeting of its monetary policy committee since the Brexit vote three weeks ago. |
| Surveys have shown that the shock waves from the referendum have hit consumer and business confidence, and had an immediate impact on the property market. In the end, the Bank resisted the temptation to reduce the cost of borrowing for the first time in more than seven years. Only one of the nine members of the MPC favoured providing an instant stimulus to the economy. | |
| Instead, Threadneedle Street has decided to wait until next month before taking any action. Make no mistake, the Bank believes that it will need to act if the economy is to avoid a post-Brexit recession but not quite yet. | Instead, Threadneedle Street has decided to wait until next month before taking any action. Make no mistake, the Bank believes that it will need to act if the economy is to avoid a post-Brexit recession but not quite yet. |
| So why wait? If interest rates are going to be cut anyway, why not get on with without delay? | So why wait? If interest rates are going to be cut anyway, why not get on with without delay? |
| Related: Bank of England leaves UK interest rates on hold at 0.5% | Related: Bank of England leaves UK interest rates on hold at 0.5% |
| Firstly, the Bank wants to have a closer look at the state of the economy before moving. There has been very little hard data since 23 June but the picture will be clearer by the time of the next MPC meeting in early August, which coincides with the release of the Bank’s quarterly assessment of the state of the nation. | Firstly, the Bank wants to have a closer look at the state of the economy before moving. There has been very little hard data since 23 June but the picture will be clearer by the time of the next MPC meeting in early August, which coincides with the release of the Bank’s quarterly assessment of the state of the nation. |
| This will provide forecasts for growth and inflation over the coming months, and provide a justification for whatever the Bank decides to do. | This will provide forecasts for growth and inflation over the coming months, and provide a justification for whatever the Bank decides to do. |
| Secondly, the financial market reaction since the referendum has been less acute than looked likely in late June. Share prices have bounced, the pound has stabilised and even edged up a bit on the foreign exchanges, and long-term interest rates have fallen. | Secondly, the financial market reaction since the referendum has been less acute than looked likely in late June. Share prices have bounced, the pound has stabilised and even edged up a bit on the foreign exchanges, and long-term interest rates have fallen. |
| Thirdly, the economy has received something of a stimulus from the fall in the pound – which boosts exports – and from the Bank’s decision to ease the capital requirements on commercial banks, which increases their capacity to lend. | Thirdly, the economy has received something of a stimulus from the fall in the pound – which boosts exports – and from the Bank’s decision to ease the capital requirements on commercial banks, which increases their capacity to lend. |
| Fourthly, it is hard to see what material effect a cut in interest rates to 0.25% will have, given that they are already at record low levels. The situation is different now from the aftermath of Black Wednesday in September 1992, when borrowing costs could be cut aggressively from 10%. | Fourthly, it is hard to see what material effect a cut in interest rates to 0.25% will have, given that they are already at record low levels. The situation is different now from the aftermath of Black Wednesday in September 1992, when borrowing costs could be cut aggressively from 10%. |
| Finally, there was a risk that by acting in a kneejerk fashion, the Bank could make matters worse. If consumers and businesses get the impression that the Bank is being rushed into action, it could further dent confidence. | Finally, there was a risk that by acting in a kneejerk fashion, the Bank could make matters worse. If consumers and businesses get the impression that the Bank is being rushed into action, it could further dent confidence. |
| Threadneedle Street wants to use what limited ammunition it has judiciously and at a time of its own choosing. That moment is only three weeks away. On 4 August, the Bank will cut interest rates and back that up with a resumption of its quantitative easing programme, which pumps money into the economy. | Threadneedle Street wants to use what limited ammunition it has judiciously and at a time of its own choosing. That moment is only three weeks away. On 4 August, the Bank will cut interest rates and back that up with a resumption of its quantitative easing programme, which pumps money into the economy. |
| Nothing is really lost by holding on for three weeks and there is something to be gained. Put simply, the Bank wants to show that it is control of events rather than being forced into precipitate action. That makes sense. | Nothing is really lost by holding on for three weeks and there is something to be gained. Put simply, the Bank wants to show that it is control of events rather than being forced into precipitate action. That makes sense. |