The Difficult Choice Of The Bank Of England And The Effect On The Pound And The U.K. Banking Sector

Following the surprising decision on July 14th to maintain monetary policy unchanged, the Bank of England is widely expected to cut rates by 25bp at the end of Thursday 4th monetary policy meeting. According to sterling overnight index swap (OIS) rates the probabilities of 25bp rate cut are 98%. A bolder rate cut is not considered possible by markets: the probabilities assigned to a 0.5% rate cut are 0%. The Bank of England could also decide to reactivate the QE program at a pace of GBP25bn per quarter. However, in our view…

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