PIMCO expect Bank of England to cut to zero

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PIMCO on the Brexit vote and what it means for BoE policy in the near and medium terms:

Near term:
  • The UK economy will be pulled lower by uncertainty
  • We expect the Bank of England to cut the official interest rate to zero
  • If it feels the need to do more, we expect a reintroduction of quantitative easing rather than a move to lower the official rate into negative territory
Medium term
  • Expect a period of greater relative calm (negotiation will take time)
  • Only after Cameron has resigned (October) will negotiations around the EU separation begin
  • The time for these negotiations would likely be up to two years under Article 50 of the Lisbon Treaty. However, we would expect informal negotiations to start before the UK government formally initiates the exit process.
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