| LONDON, Sept 15
LONDON, Sept 15 The Bank of England is expected
to say on Thursday that it will still probably cut interest
rates to a fraction above zero later this year, despite signs it
overestimated the initial shock to Britain's economy from June's
The BoE's nine rate-setters probably voted unanimously at
their September meeting to keep Bank Rate at 0.25 percent, the
lowest level in the BoE's 322-year history, according to a
Reuters poll of economists.
The Bank will probably also signal that a further cut is
likely the next time it meets, in November, as it to tries to
help the economy cope with the referendum decision in June to
leave the European Union.
When the BoE stepped in with a stimulus push on Aug. 4, it
had little concrete data on the impact of the Brexit vote. But
since then signs have grown that the economy, while still
heading for a sharp slowdown, weathered the initial shock.
Governor Mark Carney, who has been accused by Brexit
supporters of being alarmist with his warnings about the
consequences of a "Leave" vote, said earlier this month that
growth might slow to around 0.3 percent in the third quarter.
That would be slightly less severe than the 0.1 percent
crawl that the BoE had expected but half the pace of growth in
the April-June period.
"The UK is far from out of the woods yet," Daniel Vernazza,
an economist with UniCredit bank, said. "In particular, surveys
suggest businesses are deferring investment."
The Bank's Monetary Policy Committee is expected to stick
with the other emergency measures it announced last month --
raising its bond-buying programme to 435 billion pounds ($575
billion) and launching a new plan to buy 10 billion pounds of
corporate bonds -- although some of its members might again
voice their objections.
The MPC is likely to reiterate that the Brexit uncertainty
will drag on the economy as Britain and the EU thrash out a new
relationship over the next couple of years, probably resulting
in less access for British exporters to the EU's single market.
Another likely drag will come from a rise in inflation
triggered by the slump in the value of the pound after the
referendum. Although that could help exporters, it is likely to
push up inflation, hurting the spending power of consumers.
Under the MPC's new calendar, the Bank's next rate decision
is scheduled to take place on Nov. 3. That is when economists
expect it to cut borrowing costs to around 0.1 percent.
While the European Central Bank and the Bank of Japan have
cut interest rates below zero, Carney has said he does not
favour resorting to negative rates in Britain, as this could
hurt the country's banking sector.
Instead, with the Bank running short of options, it may fall
to finance minister Philip Hammond to give the economy its next
significant dose of stimulus. He has said he will slow the
country's push to turn its budget deficit into a surplus and is
expected to announce higher public spending in November.
($1 = 0.7567 pounds)
(Writing by William Schomberg; Editing by Catherine Evans)