Investment Clock insights

Expect another rate cut in November

Ian Kernohan, Economist

15 September 2016

The Monetary Policy Committee (MPC) had already cast doubt on the large fall in the July Purchasing Managers Indices (PMIs), so the economy’s bounce back in August should not have come as a surprise to them.  There is enough evidence to suggest that while the economy may have slowed in Q3, it did not fall into recession, and the MPC note that data has actually been slightly stronger than they expected.  

However, the Bank sees these short-term concerns as a side issue, noting that there has been no new information since the August Inflation Report relevant for the UK economy’s longer-term prospects. 

The Bank’s view is that the Brexit process will take some time, and will create uncertainties for households and firms.  Specifically, they expect business spending to slow more sharply than consumer spending in response to this uncertainty.  In my view, the news since the August Inflation Report should not have impacted this medium-term assessment of the UK’s economic prospects, and I expect another rate cut in November.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.