In August, the MPC will also discuss the full range of instruments at its disposal.
Advertisement
In Asia, investors were upbeat too with Hong Kong’s Hang Seng rising 1.8%, the Shanghai Composite ahead 0.1% and Japan’s Nikkei 225 posting a 0.5% gain.
He said that an “uncomfortable truth is that there are limits to what the Bank of England can do”.
But Carney warned that central bankers on their own would not be able to eliminate the referendum shock and Britain’s economic growth prospects would be driven by “much bigger decisions; by bigger plans that are being formulated by others”.
Interest rates are now already at a record low of 0.5% and the suggestion of a further cut saw the pound weaken against the euro, dropping by more than 1% to 83.845 pence per euro, its weakest in more than two years.
The decline in the pound to USA dollar also pulled down the two-year British government bond yield to negative for the first time in late European trading. Thursday’s speech, however, was an even stronger and more concrete assertion regarding the likelihood of an actual rate cut from the current record low of 0.5%.
The sector move came after sources said that the European Central Bank is not now considering buying government debt out of proportion to euro zone countries’ shareholding in the bank, cooling speculation that the ECB might use more unorthodox stimulus measures in light of the Brexit vote.
That halted a two-day rally in sterling, and left it more than 10 percent lower since polls closed on June 23. On Friday, sterling bought $1.3285 compared with $1.3244 late Thursday in NY.
“We expect financial market volatility to persist as events unfold and uncertainty over the future of the UK’s relationship with the European Union will feed into the real economy”, the consultancy firm said. “There are still political uncertainties and let’s not forget that we’re in a low-growth environment where corporate profits are struggling”. The worries that had impacted investment decisions prior to the vote are now likely to intensify and whilst Carney said he was willing to act, the ability of monetary policy to fix these problems are of course limited’. The governor also said that the UK’s Brexit vote has “deteriorated” the outlook for the country’s economy in the coming years. Money markets, based on sterling overnight indexed swaps, were pricing in a rate cut in August or September, although some economists said the BoE could ease policy in July itself.
Advertisement
He said the BoE would offer £250 billion-plus “substantial” access to foreign currency to ease any squeeze in the markets and the Bank would take more steps if needed. “Now, he undoubtedly faces his greatest ever challenge, in calming the storm caused by last week’s referendum result”.
