Yahoo Finance Bank should not be panicked into rate cut
A BIG decision awaits Mark Carney and his Bank of England colleagues on Thursday — whether to cut rates in the face of so-so economic data, or trust that positive sentiment since the general election will soon translate into actual growth.
The City thinks the decision is on a knife-edge. The always two-handed economics profession (on the one hand this, on the other…) is finding it even harder than usual to make a prediction with confidence. I think the Bank definitely shouldn’t cut rates, and that it probably won’t.
For one thing, this is the Governor’s last Monetary Policy Committee press conference and it seems unlikely he wants to go out on a note of controversy. The main feature of his stewardship has been stability. Why cut if the decision is marginal?
Some ask if coronavirus flu isn’t a reason to cut now to give a quick boost to an economy likely to be hit by the inevitable Chinese slowdown. I’d say it’s another good reason to wait. If this horrible virus really does spread — hospitals in chaos, schools closed and, worst, football matches cancelled — the UK economy is plainly going to need a nudge.
So it would seem unwise to unload ammunition now before we know the extent of the battle. If the Bank doesn’t cut now, that does at least leave it with some room to wiggle later. That’s a case in general for slowly moving rates up from the already very low 0.75% as soon as possible.
Then when genuine crisis does come (it will) the Bank at least has something meaningful to cut.
