The bank’s research team said it expects the BoE to cut rates to 10bps. They will stop short of going to zero, BAML noted, because the monetary policy committee has stated the lower bound for interest rates is close to but “a little above zero.”
BAML’s forecast comes despite a run of good news in the UK economy this week, including a strong employment update and surprisingly robust retail sales numbers for July revealed on Wednesday.
While some forecasters now say the UK will avoid a Brexit inspired recession, the BAML team said it still expects ‘very mild’ recession.
There is even a chance Mark Carney and his colleagues will move in October if data prints are bad, BAML said. Possible triggers include an absence of improvement to PMIs levels.
Carney has been ‘unequivocal in his dislike of negative interest rates’ according to BAML so if that is to be believed, 10bps is as low as it will go, and the onus will move on to fiscal policy.
