BoE to cut rates by 25bps in August and November, says Nomura

Bank of England governor Mark Carney’s speech on Thursday was a very clear message of easing to come, Nomura said in a note.

The Japanese bank said Carney’s comments have significantly reduced its fears that excessive falls in sterling will stay the central bank’s hand, or that it will wait for a full set of data before deciding on a move.

Nomura’s UK economists now expect a 25 basis points rate cut in August, followed by another 25 bps cut in November. It replaced its previous call for a 50 bps cut in November with a forecast for £125bn in quantitative easing in 2017.

“The MPC may ultimately conclude it can go slightly negative, or it may prefer to keep a marginally positive rate. These two risks broadly balance themselves out in our view, to leave our modal and mean BoE call for the lower bound at 0bp.”

Nomura expects the MPC to restart quantitative easing in February 2017, arguing that significant uncertainty continues to pervade the economic outlook, which complicates calling the MPC’s policy response.

“For now, we pencil in purchases totalling £125bn (+£50bn in February; +£50bn in May; +£25bn in August), which would leave the stock of assets purchased from the various iterations of QE at a nice round half trillion. Any redeeming bonds will continue to be reinvested, so the flow rate will also be supported by this.”