The Bank of England is scheduled to meet with its Monetary Policy Committee to decide on the monthly interest rates. There are whispers from the market analysts that there is a possibility for the BoE’s MPC to reduce the interest rates even further.
While the current interest rates at 0.5% is an all time low since 2009, the recent UK GDP contraction and IMF’s outlook on the UK could be factors that will be weighed in during the meeting and could perhaps lead to a lower interest rate at 0.25%, which is unlikely to happen. Read on, why.
UK’s GDP during the second quarter of this year showed an economic contraction of 0.7% confirming worries that the UK is in a prolonged double dip recession. So the agenda is quite clear that both the Government and the Bank of England will clearly be looking at ways to stimulate the economy.
Another important decision to be taken today includes the BoE’s quantitative easing program. The current round of easing is due to end in November but there are talks that the BoE could well possibly extend this program to an additional £50 million.
Looking at the recent economic data, new mortgage approvals dropped to the lowest levels in June recording an 18 month low. Total lending such as credit card borrowing saw a marginal increase of £0.3 billion, the slowest gains in over two years.
Bank of England’s Funding for lending scheme, aimed at incentivizing banks to encourage lending to small and medium businesses as well as individuals got underway yesterday in hopes to provide cheaper loans to banks as well as consumers. This new scheme has been the largest credit easing initivative taken up at £80 million. Participating banks in this scheme no longer have to pass on the 1% reduction in the interest rates making it an attractive scheme for consumers and banks.
An economist at RBS commented that the current economic situation is grim and given that its still too early to comment on the FLS, the BoE would like to give this some time to monitor which could prevent Sir Mervyn King from taking any big steps during today’s Monetary Policy Committee meeting.
Bank of England will be announcing their decision at mid-day today.
Whatever the outcome, the GBP will be surely be dancing today. Check out our ECN Forex brokers to hedge or scalp the markets during the news release.
The ECB is also scheduled to release their interest rate decision which is also at a record low of 0.75% but it is not likely that there will be any further interest rate cuts. However, in context with the recent comments made by Mario Draghi in regards to sustaining the Euro, it will be interest to see what decision will be taken.