MPC cuts Bank Rate, August 2016 - PwC comments

Published at 12:22 PM on 04 August 2016

Commenting on the latest Bank Rate out today, Andrew Sentance, senior economic adviser at PwC, said:

"This cut in interest rates was widely expected, but it is really a token gesture which is unlikely to help the economy much in the current situation. Savings rates are already near-zero and borrowing costs for business and homeowners are extremely low. The pound could well weaken further, adding to inflation and business costs. The margin banks earn on their lending is likely to be squeezed, creating new pressures in the financial system.

"The uncertainty created by the Brexit referendum result cannot be addressed by small changes in interest rates or other monetary measures. It requires a political response from the government, to make clear the nature of our future relationship with the EU - which will inevitably take time. There are some circumstances when a central bank can do little to offset the shock to the economy and the resulting uncertainty, and that is the case now.

"Additional Quantitative Easing is unlikely to be effective in the current climate. QE helps to push down bond yields and boost financial confidence - and had a positive effect back in 2009 when the financial system was so weak. But this situation is different, and QE could create unintended consequences - weakening the pound and further undermining the already low rates of return which pension funds and other investors are able to earn."

Ends.

For further information please contact Tilly Parke: [email protected] / +44 20 7804 8761


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