Bank of England to Cut Rates Twice by May, Merrill Lynch Says

(Bloomberg) -- Bank of England policy makers will cut interest rates by 25 basis points twice in the next year, according to Bank of America Merrill Lynch.

Trade wars and Brexit have left Britain’s growth outlook weaker than previously thought, Chief U.K. Economist Rob Wood wrote in a report published Friday. He now sees a quarter-point reduction in November and again in May.

“Growth below trend, inflation soon below target and large downside risks. If a central bank doesn’t cut in those circumstances when would it?” Wood said. “While this should not be a difficult call, it feels difficult. Although the Bank of England has recently turned dovish we think they will resist cutting rates given how hard they argued for moving away from the effective lower bound.”

Policy makers Silvana Tenreyro and Gertjan Vlieghe this week both reiterated the BOE’s view that tightening will be required in the event of a smooth Brexit, although each pointed to the global outlook among factors that could weigh on the likelihood of such a move.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Brian Swint

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