Its Monetary Policy Committee meets on Thursday—for the first time since the Brexit voteby George Magnus / July 11, 2016 / Leave a comment
Read more: The FTSE indices will respond to Brexit in good time
The fastmoving events of domestic politics are currently driving what goes on in the UK markets. However the Bank of England’s Monetary Policy Committee has been assessing the state of the economy in the wake of the EU referendum, and will announce at noon on Thursday what it has decided to do (if it does decide to do something) with monetary policy. Financial markets are fairly convinced that the MPC will vote to cut interest rates by 25 basis points to 0.25 per cent, the first reduction since 2009. So the BoE will make news on Thursday, but there are other important things going on worldwide which will affect the UK one way or another.
In Japan, Prime Minister Shinzo Abe has just secured a sufficient majority in elections to the upper house of the Diet (parliament) to advance proposals for constitutional reform, including a probable change to the pacifist provisions of the constitution that have been in situ since 1947. This comes as the United Nations tribunal, which has been considering the maritime rights of countries claiming strategic reefs and atolls in the South China Sea, is expected to report on Tuesday. It has no enforcement powers, but China’s reaction will be important as it has refused to participate and has challenged the tribunal’s authority. The sharper its rhetoric, the greater the risk that tensions between China, several of its Asian neighbours and the US will escalate.
Closer to home, the instability of the Italian banking system continues to cause concern. It is estimated that the banks, whose share prices have plummeted, need about €30-40bn of new capital. At the end of July, the European Banking Authority’s latest bank stress tests will be published, and these are widely expected to corroborate this view. The “crisis” has already caused a rift between Rome and Brussels as to how the capital should be raised, and from whom—government or creditors. European banking union rules assert it should be the latter. However, a lot of small Italian savers would lose money just three months before an important national referendum over constitutional changes, while the Renzi government seems behind in polls and faces…