Stefano Fugazzi reports
Markets are convinced that there will be at least one cut in UK interest rates this year. Many believe that the Bank of England may announce a rate cut as early as this week.
“Following the publication of the weakest PMI data since 2009 last week, the drop in the BBA’s own business borrowing data for June and successive downward revisions of independent forecasts, it is understandable that this is being discussed, even predicted,” Chief Economist of the British Bankers Association (BBA) Rebecca Harding noted in an article published today.
In spite of disappointing economic data being published in the aftermath of the referendum vote, the BBA economist argues that it is still too early to tell what the real effects of Brexit on the economy are likely to be. “A knee-jerk reaction could do more damage than good,” she said.
Whilst the Construction PMI appears to have been falling throughout the last 12 months, lending to the sector – using a 6 month moving average – has actually improved to June 2016. This suggests that even if sentiment may be falling back, the sector itself is still borrowing and therefore still in growth territory.
“Additionally, the SME sector, while predictably uncertain about what Brexit means for them, is predominantly domestically focused and, according to the Bank of England’s own data, bucking the downward trend seen in business borrowing more generally. While SME net borrowing appeared to fall sharply in Q1 2016 on both the BBA and the Bank of England data, the Bank’s own data for Q2 suggests robust SME net borrowing. Again, this is not a picture of nervousness, but rather one of strength,” Rebecca Harding concluded.