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BoE Set to Cut Rate to Address Post Brexit with More QE a Possibility

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.

via Mainichi [1]

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Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza