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| First UK interest rate cut in seven years expected | First UK interest rate cut in seven years expected |
| (35 minutes later) | |
| The Bank of England is widely expected to cut UK interest rates for the first time since March 2009 on Thursday. | The Bank of England is widely expected to cut UK interest rates for the first time since March 2009 on Thursday. |
| It is anticipated that Mark Carney, the Bank governor, will announce a reduction from 0.5% to 0.25% at noon. | It is anticipated that Mark Carney, the Bank governor, will announce a reduction from 0.5% to 0.25% at noon. |
| Last month the Monetary Policy Committee (MPC) voted to hold interest rates, despite economists predicting a cut. | Last month the Monetary Policy Committee (MPC) voted to hold interest rates, despite economists predicting a cut. |
| While a reduction is not certain, there is increasing pressure on the Bank to act after recent poor economic data. | While a reduction is not certain, there is increasing pressure on the Bank to act after recent poor economic data. |
| With a sharp fall in the services sector, factory activity down and the construction industry also slowing, most economists argue now is the time for action. | |
| "Economic data since the referendum have weakened sharply. There is a real need for more stimulus now," says Samuel Tombs, chief UK economist at Pantheon Macroeconomics. | "Economic data since the referendum have weakened sharply. There is a real need for more stimulus now," says Samuel Tombs, chief UK economist at Pantheon Macroeconomics. |
| David Blanchflower, a former MPC member and now professor of economics at Dartmouth College in the US, says the Bank must, at the very least, cut rates: "If the data turns around, the Bank can reverse the cut. | |
| "If they don't act and it turns out they should have, then the situation is much worse." | "If they don't act and it turns out they should have, then the situation is much worse." |
| A rate cut would be intended to boost the UK economy in the wake of the country's vote to leave the European Union. | A rate cut would be intended to boost the UK economy in the wake of the country's vote to leave the European Union. |
| But the uncertainty surrounding Brexit, as well as how any stimulus could affect financial markets, will cause the MPC difficulties in deciding what to do. | But the uncertainty surrounding Brexit, as well as how any stimulus could affect financial markets, will cause the MPC difficulties in deciding what to do. |
| Andrew Sentance, a former MPC member and now senior economic adviser at PwC, says a rate reduction would at this point be a "wasted gesture". | Andrew Sentance, a former MPC member and now senior economic adviser at PwC, says a rate reduction would at this point be a "wasted gesture". |
| "I wouldn't be surprised to see a rate cut, but I don't think it's the right decision at the moment," says Mr Sentance. | "I wouldn't be surprised to see a rate cut, but I don't think it's the right decision at the moment," says Mr Sentance. |
| "The shock that has hit the economy is a political one. It's shaken the underlying position of the economy, which isn't something that monetary policy is particularly well placed to solve." | |
| Resuming quantitative easing (QE) - when the government buys assets with money it has created electronically - is another option for the MPC. It does, however, bring its own problems, as the final result cannot be accurately predicted. | Resuming quantitative easing (QE) - when the government buys assets with money it has created electronically - is another option for the MPC. It does, however, bring its own problems, as the final result cannot be accurately predicted. |
| "QE is even less appealing than a cut to interest rates," says Mr Sentance. | "QE is even less appealing than a cut to interest rates," says Mr Sentance. |
| "Financial markets were in such a fragile state when QE was introduced in 2009; they aren't in that position now. We don't have the same level of turbulence, there is a chance of making things worse." | |
| Borrowers' delight? | |
| For borrowers, a rate cut could be good news. | For borrowers, a rate cut could be good news. |
| Using Office for National Statistics (ONS) house price data, a cut to 0.25% would mean a £22 monthly reduction in the bill for a variable 25-year repayment mortgage on a typically priced home of £211,000 (taking a 20% deposit into account). | Using Office for National Statistics (ONS) house price data, a cut to 0.25% would mean a £22 monthly reduction in the bill for a variable 25-year repayment mortgage on a typically priced home of £211,000 (taking a 20% deposit into account). |
| However, for those with a fixed mortgage or for people hoping for returns on savings, the rate cut will not be welcome. | However, for those with a fixed mortgage or for people hoping for returns on savings, the rate cut will not be welcome. |
| "Many households have fixed their mortgage payments for several years, meaning they will see no immediate benefit from a rate reduction," says Mr Tombs. "With this limiting the impact of a rate cut on the real economy, the Bank may judge that the benefits of zero rates do not justify the costs." | |
| The last time the Bank cut interest rates was in March 2009, at the height of the financial crisis. | The last time the Bank cut interest rates was in March 2009, at the height of the financial crisis. |