Abu Dhabi, UAEThursday 22 August 2019

Bank of England to slash rates by 25 basis points by May, Merrill Lynch says

Trade wars and Brexit have left Britain’s growth outlook weaker than previously thought

The Bank of England in the City of London square mile. Analysts forecast the lender is set to cut rates. Bloomberg
The Bank of England in the City of London square mile. Analysts forecast the lender is set to cut rates. Bloomberg

Bank of England policy makers will cut interest rates by 25 basis points twice in the next year, according to Bank of America Merrill Lynch.

Trade wars and Brexit have left Britain’s growth outlook weaker than previously thought, chief UK economist Rob Wood wrote in a report published Friday. He now sees a quarter-point reduction in November and again in May.

“Growth below trend, inflation soon below target and large downside risks. If a central bank doesn’t cut in those circumstances when would it?” Mr Wood said. “While this should not be a difficult call, it feels difficult. Although the Bank of England has recently turned dovish we think they will resist cutting rates given how hard they argued for moving away from the effective lower bound.”

Policymakers Silvana Tenreyro and Gertjan Vlieghe this week both reiterated the BOE’s view that tightening will be required in the event of a smooth Brexit, although each pointed to the global outlook among factors that could weigh on the likelihood of such a move.

Updated: July 12, 2019 05:32 PM

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