Current expectations are that the Bank of England will announce a 50-basis point rate cut when it reveals the outcome of its latest monetary policy meeting at noon GMT on Thursday.
But as Marc Ostwald and his team at Monument Securities point out, speculation is rising that the BoE may completely surprise with a hold because there is no point in cutting rates given that little or nothings is being passed on. Although Monument add that while factually correct it’s not an argument which washes in the current environment. As Monument (who believe the Bank has already begun quantitative easing) explain:
Indeed there are others who look for a 100 bps rate cut, and with the press baying for blood once again, and MPC members admitting that rates may go to near zero levels as well as there needing to be a discussion about the merits of quantitative easing, a larger than expected cut is a relatively strong possibility. On the other hand 3-mth GBP Libor rates have fallen around 125 bps since the last MPC meeting, in effect giving the MPC more “bang for their buck” in terms of the last rate cut, and by extension offering the MPC a rationale for a more modest cut of 50 bps, which is also what is priced into the SONIA curve.
Meanwhile, speaking on CNBC Europe Thursday morning David Bloom, global head of currency strategy at HSBC, said he believed the Bank has never had as many options as it does now.
Whatever the Bank does do today, it’s unlikely to save the tracker mortgage. With rates already at 2 per cent, most products on the market have already seen their inbuilt ‘floors’ triggered. Such collars are set within lenders’ terms and conditions expressing the point at which rate cuts no longer have to be passed on. Nationwide, for example, has a 2.75 per cent collar, while Halifax has 3 per cent one.
And with rates likely staying at the sub-3 per cent level for a while it’s no surprise many products are now being completely removed from the market. For example, the Telegraph reports C&G, the mortgage arm of Lloyds TSB, took its trackers off the market Wednesday night.
Cheltenham & Gloucester and First Direct have also said they are withdrawing or making changes to their tracker mortgage rates ahead of the Bank of England decision.