Summary

More stimulus for the UK, Europe and Japan

Recent months have brought further monetary policy stimulus in Japan and the UK, and the European Central Bank (ECB) is also favoured to continue to add to monetary policy accommodation over the course of this year.

With interest rates already negative, the Bank of Japan (BoJ) and the ECB are pushing further into unconventional quantitative measures in an effort to support growth and reinvigorate inflation. This is occurring even as the effectiveness of ever looser monetary policy, zero and negative interest rates and unconventional policy settings are increasingly being questioned.

The Bank of England (BoE) has its own unique set of problems. This is due to the ‘Brexit’ vote that will see the UK leave the European Union. Before the vote on 23 June, the BoE had been favoured as the second major global central bank to begin to remove policy stimulus, after the US. It has now been forced to reverse course. At the same time a heightened degree of uncertainty is impeding economic activity and politicians are now scrambling to come to an agreement on a way forward.

UK: Policy uncertainty
The post-Brexit environment will remain challenging

IFM-Investors-Economic-Update-September-2016-Graph-1

Source: IFM Investors, www.PolicyUncertainty.com

For economic policymakers, the task is to attempt to reduce the impact on the economy, which is now broadly expected to enter recession. In August, the BoE cut rates 25 bps to just 0.25% and increased its government bond buying program from £375bn to £435bn. It also committed to start purchasing corporate bonds. Monetary conditions more broadly have eased as the GBP continues to trade around 11.0% lower than before the Brexit vote.