Consistent with our call in Monday’s Macrocast, the BOE cut rates by 25bps on Thursday.
Along with the cut, the BOE included several additional stimulus measures designed to guide the UK economy out of Brexit uncertainty. These included: “a new Term Funding Scheme to reinforce the pass-through of the cut in Bank Rate; the purchase of up to £10 billion of UK corporate bonds; and an expansion of the asset purchase scheme for UK government bonds of £60 billion.”
Emphasizing their readiness, the BOE asserted that “the MPC can act further” to bolster stimulus with a Q3/Q4-2016 recession looming. With an algorithmically-generated* momentum** for the bank of -0.43 (dovish), Prattle’s real-time data was in line with the BOE’s dovish decision and tone.
The bottom line: Brexit has begun to affect the UK economy, and the BOE is ready and willing to continue to counteract these shocks with proactive measures.
* Prattle’s models are based on the historical relationship between central bank language and market reaction, which is used as basis of evaluation for future communications. The scores are normalized around zero and range between -2 and 2, negative numbers indicating dovishness and positive numbers indicating hawkishness.
** The momentum is the average of the last ten residual scores. Residual scores represent the tone of a communication compared to the rolling, 12-month average for that individual communication type or speaker. Raw scores represent the tone of a communication compared to the average of all communications.