With the British economy in its deepest trouble since the global financial crisis in the wake of the vote to leave the European Union, the Bank of England is expected to unveil Thursday stimulus measures including a rate cut and, possibly, the creation of billions in new money.
Early indicators since the June 23 vote suggest that the economy is contracting at its sharpest rate since 2009. Manufacturing, services and consumer spending are falling, the pound is down 10 percent and questions linger over what trade relations the country will have with the rest of the EU in coming years.
As a result, the Bank of England is expected to cut its key interest rate from a record-low 0.5 percent on Thursday, diverging from policymakers at the U.S. Federal Reserve who in December raised their benchmark for the first time in seven years. The bank may also expand its stimulus program called quantitative easing under which it buys government bonds from banks with newly created money, effectively pumping extra money into the economy.
“The Bank of England should throw the kitchen sink at the problem,” wrote Robert Wood, an economist at Bank of America/Merrill Lynch. “The worst thing that could happen now is the stimulus does not work, so better to do too much.”
The Bank of America Merrill Lynch analysts forecast a 0.25 percentage point rate cut, an additional 50 billion pounds ($67 billion) of bond-buying and other efforts to stimulate lending.