15th July 2016

BBA Brief – 15 July 2016

Bank of England holds interest rates

The Bank of England yesterday kept interest rates unchanged at 0.5 per cent despite speculation that it would cut them for the first time since March 2009 (BBC News). The Bank’s Monetary Policy Committee voted 8-1 to hold rates, leading to sterling climbing by more than two cents against the dollar immediately after the announcement. The Bank said: “Most members of the committee expect monetary policy to be loosened in August. The precise size and nature of any stimulatory measures will be determined during the August forecast and Inflation Report round.” The Times (£, p39) notes that any additional stimulus will be set out alongside the Bank’s inflation report on 4 August.

European lenders face up to €40 billion capital bill

A report from the Boston Consulting Group has claimed that European banks could be forced to put as much as €40 billion of extra capital into their UK branches as a result of the EU referendum vote (FT, £, p16). The report also said that Brexit will trigger an 8-22 per cent rise in annual costs for the banks’ capital markets divisions, which may prompt banks to withdraw from some activities. The report states: “Clearly, the ability of banks to centre their operations and maintain scale in a single, well-capitalised London entity is now uncertain […] The additional benefits of liquid, robust markets and access to talent as well as clients may be eroded.”

MPs warn over money laundering

The Home Affairs Committee has criticised the Government and the National Crime Agency for failing to prevent the UK property market being exploited by international money launderers (Guardian, p11). Keith Vaz, the committee’s Chairman, said “The proceeds of crime legislation has failed. London is a centre for money laundering, and its standing as a global financial centre is dependent on proactively and effectively tackling money laundering. Investment in London properties is a major route which tarnishes the image of the capital. Supervision of the property market is totally inadequate.” The MPs also called for a new criminal offence to be created for refusing to hand over money and assets derived from crime (BBC News).

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Today’s diary

ONS: UK Government debt and deficit for Eurostat

Lord Hill expected to stand down as Commissioner for Financial Stability, Financial Services and Capital Markets Union

Stat of the day

88 – the number of months since the Bank of England last changed interest rates from the current level of 0.5 per cent (Bank of England).

In brief

Germany’s Finance Minister Wolfgang Schaeuble has said that demands for British financial services firms to have access to the EU single market were “reasonable” (Telegraph, p2).

Mobile bank Starling has been granted a UK banking license by the Bank of England and the Financial Conduct Authority (Telegraph, B3).

Prime Minister Theresa May has completed her first cabinet reshuffle and is set to meet Scottish First Minister Nicola Sturgeon in Edinburgh later today (BBC News).

Three Federal Reserve policymakers have expressed the view that there is no rush to raise US interest rates (Reuters).

What the commentators say

Writing in City AM (p16), Andrew Sentence urges the Bank of England to wait until the autumn before moving interest rates.

Philip Aldrick looks at the Bank of England’s “Brexit bazooka” in August could adopt be more inventive than just an interest rate cut (Times, £, p43).

Writing in the Telegraph (B2), Allister Heath argues that the Chancellor should “tear up the rules on monetary policy” and refocus the Bank of England’s monetary remit to focus on nominal GDP.

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