As of last week, the swaps market had been pricing in a 78% chance that interest rates could be cut today, up from a 50% probability in July.
But the Bank of England’s Monetary Policy Committee (MPC) has surprised markets by holding the base rate at a vote of 8-1, which is unchanged since March 2009.
Simon Checkley, managing director of Private Finance, said it welcomed the MPC’s decision and anticipated the committee will cut rates by as much as 50 bps in August.
He added: “Due to the favourable exchange rate for foreign buyers and the ‘safe’ haven status that London offers, we believe that London could once again see a steady flow of overseas capital supporting the market. In the past two weeks we have noted a growing trend of overseas buyers who are willing to take a position in the FX market in anticipation of finding a suitable property, which reinforces our longer term expectation of the lack of significant change in the local market due to sustained balance of supply and demand.”
After the Brexit vote result to leave, Governor of the Bank of England Mark Carney strongly hinted that interest rates would be cut at some point over the summer, explaining that monetary easing was likely to be required as the UK’s economic outlook has deteriorated.
Financial markets went into a state of shock after the UK voted to leave the European Union last month.
But Carney has warned that monetary policy “cannot immediately or fully offset” the implications of such a significant, negative blow to the economy.
UK politics have been in turmoil since the Brexit vote, which saw David Cameron hand in his resignation as Prime Minister shortly after, with former home secretary Theresa May taking over yesterday. Since then, May has been hiring and firing for her new Cabinet, replacing George Osborne with Philip Hammond as Chancellor of the Exchequer.
Hammond has ruled out an emergency Brexit budget, which was floated by Osborne before the vote, and has confirmed that this year’s autumn statement will be carried out in the normal fashion.
