Halister News

(Bloomberg) -- BOE rate cuts, more QE may do little to spur business investment when firms still don’t know whether they will be on level terms against European competition after Brexit, Steve Barrow, strategist at Standard Bank, writes in client note.

• The magnitude of the Brexit shock is huge, he says, citing the CBI survey of business confidence
• There may be a case for helicopter money, with the government using BOE’s cash to plug the hole in private demand with spending in areas like infrastructure
  • BOE members may argue Brexit is a temporary phenomenon so doesn’t require a permanent solution, suggesting such a step is doubtful at this stage; more likely central bank will announce a 25bps cut and GBP50b to GBP100b of QE next month, Barrow says in e-mailed comments
• GBP/USD may stay around low 1.30s for now, given MPC appears to have little appetite to weaken sterling and as Brexit news flow may prove to be more positive than many expect
  • Were it to be implemented, helicopter money would hit the pound hard, as we saw with the yen’s fall, but that would be no bad thing given that inflation is too low
• NOTE: The G-20 meeting added to the voices calling for fiscal measures to boost growth, which could affect asset allocation if carried out in significant size, analysts say