Rates on hold
The MPC (on 13th July 2016) voted 8-1 to keep Bank Rate at 0.5%, with the Governor, Mark Carney, citing a lack of hard evidence that a cut was needed at this time. It will, of course, take several weeks for any data to come through regarding the impact of Brexit on prices and output.
Mr Carney pointed out that ‘markets have functioned well, and the improved resilience of the core of the UK financial system and the flexibility of the regulatory framework have allowed the impact of the referendum result to be dampened rather than amplified. ‘
Read full MPC statement
Bank of England expected to loosen monetary policy
Bank of England governor, Mark Carney, sent a strong signal this week (30th June 2016) that monetary policy will be eased further over the summer months. While he posted an upbeat message about the UK economy’s resilience to withstand economic shocks, he also sent a clear message that a recovery from the Brexit shock would require further loosening of monetary policy.
Chancellor to loosen fiscal policy
In a separate speech, Chancellor George Osborne indicated that further austerity measures would be put on hold and admitted that the Treasury’s plan to move the public finances into surplus by 2020 (Mr Osborne’s fiscal rule)looked an unlikely prospect, and that fiscal loosening was now on the agenda for the medium term.
Mr Osborne also indicated, in an interview with the Financial Times, that he would consider cutting Corporation Tax to 15% (currently 20%) to encourage continued investment in the UK. The Chancellor had previously stated in his last budget (March 2016) that Corporation Tax would be cut to 17% by 2020.