What policy action can we expect from the Bank of England?

As to world faces up to the economic effects of the Corona Virus pandemic there is a lot to think about for the Bank of England. Yesterday it put out an emergency statement in an attempt to calm markets and today it will already have noted that other central banks have pulled the interest-rate trigger.

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 0.50 per cent. The Board took this decision to support the economy as it responds to the global coronavirus outbreak. ( Reserve Bank of Australia).

There are various perspectives on this of which the first is that it has been quite some time since the official interest-rate that has been lower than in the UK. Next comes the fact that the RBA has been cutting interest-rates on something of a tear as there were 3 others last year. As we see so often, the attempt at a pause or delay did not last long, and we end up with yet another record low for interest-rates. Indeed the monetary policy pedal is being pressed ever closer to the metal.

Long-term government bond yields have fallen to record lows in many countries, including Australia. The Australian dollar has also depreciated further recently and is at its lowest level for many years.

Also in the queue was a neighbour of Australia.

At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) by 25 basis points to 2.50 percent. The ceiling and floor rates of the corridor of the OPR are correspondingly reduced to 2.75 percent and 2.25 percent, respectively.

So there were two interest-rate cuts overnight meaning that there have now been 744 in the credit crunch era and I have to add so far as we could see more later today. The problem of course is that in the current situation the words of Newt in the film Aliens come to mind.

It wont make any difference

It seems that those two central banks were unwilling to wait for the G7 statement later and frankly looking at it I can see why.

– G7 Now Drafting Statement On Coronavirus Response For Finance Leaders To Issue Tuesday Or Wednesday – Statement As Of Now Does Not Include Specific Language Calling For Fresh Fiscal Spending Or Coordinated Interest Rate Cuts By Central Banks – RTRS Citing G7 Source ( @LiveSquawk )

The truth is G7 are no doubt flying a cut to see how little they can get away with as monetary ammunition is low and fiscal policy takes quite some time to work. A point many seem to have forgotten in the melee.

The UK Economy

The irony of the present situation is that the UK economy was recovering before this phase.

Manufacturing output increased at the fastest pace since
April 2019, as growth strengthened in both the consumer
and intermediate goods sectors. In contrast, the downturn
at investment goods producers continued. The main factor
underlying output growth was improved intakes of new
work. Business optimism also strengthened, hitting a nine month high, reflecting planned new investment, product
launches, improved market conditions and a more settled
political outlook. ( IHS Markit )

This morning that was added to by this.

UK construction companies signalled a return to business
activity growth during February, following a nine-month
period of declining workloads. The latest survey also pointed to the sharpest rise in new orders since December 2015. Anecdotal evidence mainly linked the recovery to a postelection improvement in business confidence and pent-up demand for new projects. ( IHS Markit)

If there is a catch it is that we have seen the Markit PMI methodology hit trouble recently in the German manufacturing sector so the importance of these numbers needs to be downgraded again.

Monetary Conditions

As you can see the situation looks strong here too as this from the Bank of England yesterday shows.

Mortgage approvals for house purchase rose to 70,900, the highest since February 2016.

The annual growth rate of consumer credit remained at 6.1% in January, stabilising after the downward trend seen over past three years.

UK businesses made net repayments of £0.4 billion of finance in January, driven by net repayments of loans.

Please make note of that as I will return to it later. Now let us take a look starting with the central banking priority.

Mortgage approvals for house purchase (an indicator for future lending) rose to 70,900 in January, 4.4% higher than in December, and the highest since February 2016. This takes the series above the very narrow range seen over past few years.

Actual net mortgage lending at £4 billion is a lagging indicator so the Bank of England will be expecting this to pick up especially if we note current conditions. This is because the five-year Gilt yield has fallen to 0.3%. Now conditions are volatile right now but if it stays down here we can expect even lower mortgage rates providing yet another boost for the housing market.

Next we move to the fastest growing area of the economy.

The annual growth rate of consumer credit (credit used by consumers to buy goods and services) remained at 6.1% in January. The growth rate has been around this level since May 2019, having fallen steadily from a peak of 10.9% in late 2016.

As you can see the slowing has stopped and been replaced by this.

These growth rates represent a £1.2 billion flow of consumer credit in January, in line with the £1.1 billion average seen since July 2018.

Broad money growth has been picking up too since later last spring and is now at 4.3%.

Total money holdings in January rose by £9.4 billion, primarily driven by a £4.2 billion increase in NIOFC’s money holding.

The amount of money held by households rose by £2.8 billion in January, compared to £3.3 billion in December. The amount of money held by PNFCs also rose by £2.3 billion.


The numbers above link with this new plan from the ECB.

Measures being considered by the ECB include a targeted longer-term refinancing operation directed at small and medium-sized firms, which could be hardest hit by a virus-related downturn, sources familiar with the discussion told Reuters. ( City-AM)

You see when the Bank of England did this back in 2012 with the Funding for Lending Scheme it boosted mortgage lending and house prices. Where business lending did this.

UK businesses repaid £4.1 billion of bank loans in January. This predominantly reflected higher repayments. These weaker flows resulted in a fall in the annual growth rate of bank lending to 0.8%, the weakest since July 2018. Within this, the growth rate of borrowing from large businesses and SMEs fell to 0.9% and 0.5% respectively.

I think that over 7 years is enough time to judge a policy and we can see that like elsewhere ( Japan) such schemes end up boosting the housing market.

It also true that the Bank of England has a Governor Mark Carney with a fortnight left. But he has been speaking in Parliament today.



That sounds like a lot of hot air which of course is an irony as he moves onto the climate change issue. I would imagine that he cannot wait to get away and leave his successor to face the problems created by him and his central planning cohorts and colleagues.

His successor is no doubt hoping to reward those who appointed him with an interest-rate cut just like in Yes Prime Minister.



16 thoughts on “What policy action can we expect from the Bank of England?

  1. As we all know on here, their main concern is going to be the housing market, so expect a rate cut and possibly an announcement on re-starting QE, this will be all wrapped up in technical sounding waffle about their concerns for the economy, but all it is for is to provide another stimulus to house prices, the effect on sterling will also be no surprise, it will crater, in just the last couple of weeks it has erased all the gains it made against the Euro in the last five months, and once 0.8750 is taken out it will blast north of 0.900, and the move to the rate at which sterling will be abandoned will be well underway, the Bank of England’s role will be pivotal, providing negative outlook statements, interest rate cuts, devaluations and endless money printing via QE , basically just more of the same but never once mentioning the real objective.All of the above will be justified as the necessary response to Corona and the looming Hard BREXIT, but it is all just distraction and smoke and mirrors, the real reason is the destruction of the UK economy and currency to force our ultimate capitulation to our banking masters and impliment our adoption of the Euro.

    • What I see is a rate cut of 0.25% as a first measure and according to Carney the last decision was more close than some think:


      As Carney had indicated he wont go negative it sill allows for two more cuts of say 0.25% and maybe another at 0.15% leaving rates 0.10 % above zero.

      There will be more QE.

      Its difficult to say what other measures the BOE will take but lets face it we also have an upcoming budget as well and they could take some measures there as well.

      Its going to be a situations which will need monitoring regularly as the coronavirus
      virus spreads and the affects become clearer.

      World growth has already been downgraded by half according to recent press on the subject and the UK downgraded to 0.8%, however if the infection takes hold in the UK I would expect a recession, retail will contract and so will the service sector be hit badly as most of the population will stay at home.

      Coffee bars, cinemas, pubs, restaurants, football matches and other entertainment will be badly hit as well as shopping malls, or indeed anywhere there are lots of people congregating.

      In fact the worst case scenario would see a massive hit to the UK economy as it almost ground to a halt and unemployment would see a rise as many workers wouldn’t; have work to do.

      , ,

  2. As someone said on Twitter, I don’t think the Covid-19 virus is particularly concerned about interest rates…

    • Hi Andy Z

      Somebody needs to tell the US Federal Reserve who rather oddly did nothing at the time of the G7 statement and then later did this.

      “In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. ”

      Also The Donald will not be pleased as after this the S&P 500 promptly dropped below 3000.

  3. We are safe! Mark Carney warns of “large” short-term economic shock, so on his past masterly track record of predictions, the UK will not be much effected.

  4. Hi Shaun

    If you and I had lived 200 years ago and this epidemic had occurred would we, or for that matter anyone else, be talking about whether or not to cut interest rates? I somehow think not because bizarrely it would be considered a public health issue and not a financial one. There are times when you do have to wonder just what progress has been made in the last couple of centuries.

    C – 19 is surely a supply shock and it’s difficult to see what an interest rate cut or more QE is going to do to remedy that. The World is already awash with liquidity and adding more is likely to achieve little except of course to supply more tinder for the potential fires of inflation when commodities do actually physically run short. It seems like a Pavlovian reaction to any vaguely bad news rather than a considered change of policy in the context of a specific threat.

    One does begin to wonder if Carney believes himself in anything he says. He has warned of a “large but temporary” hit to the UK economy due to C – 19 but, as you say, changes in both monetary and fiscal policy take some time to take effect so you could conclude that both are irrelevant which is probably the truth that can never be spoken in the rush to be seen in “doing something”. Of course this implies that it’s not just the central bankers that are Pavlovian dogs but the general public but that is perhaps more forgivable.

    However, whatever the situation you’ll always be able to rely on the central bankers to do the wrong thing.

    • agreed

      I am waiting for someone to do one of those “Hitler in bunker” videos on you toob staring Mark Carney , maybe making plans on the advance of CV-19 from the eastern front….


    • But they have to be seen doing something, so they will follow eachother like sheep and do exactly the same thing, even though it’s a waste of time.

        • Titanic?Perfect analogy for the markets, nothing seems to wrong for a long period, then suddenly the seriousness of the damage becomes apparent, everything takes a lot lot longer than expected, the end though is extremely quick:

  5. I think it was Jo Moore, who coined the phrase “a good day to bury bad news”. Absolutely any downside will be blamed on what is really a nasty flu. The recession is finally upon us (about time) and there is really nothing the CBs can do about it. Expect a lot of Keynesian spending, but somehow the borrowing take a while to get on the books and be quoted as a percentage of GDP, rather than an absolute figure.
    Fear is stalking the land.
    I thought it was amusing the other day to see Farage on Fox telling us that the UK was best off cutting itself away from Europe. Seems we are going to suffer badly and the Euro has already recovered its losses against the GBP.
    On yesterday, I had a thought – if CBS are buying shares, surely that is market manipulation, on which even the lowest in financial services have to take tests on. Then I thought about all that Russian money-laundering in London, which is a subject in the same test. I suppose laundry might be a good investment as the demand for sterility and clean clothes is going to rise soon.

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