BOE rate cut effect to be felt in 18 months: PIMCO
The Bank of England's (BOE's) aggressive policy moves could resuscitate England in the wake of Brexit, but it could take over 18 months, according to fixed income fund manager, PIMCO.
PIMCO made these calls after the BOE announced it had cut interest rates for the first time in seven years, that it would restart quantitate easing, start a corporate bond buying program and provide support to the banking system.
PIMCO's head of sterling portfolios, Mike Amey, said that the BOE's asset purchase program would take six months to complete, while the corporate bond purchase program was intended to be completed over an 18-month period.
That suggested monetary policy would remain accommodative and short-to-medium term UK sovereign yields would remain low, in spite of the fact that they had already hit new lows.
Longer-dated (30 year) gilts were yielding around 1.5 per cent and had become even more attractive over shorter maturities, as those yields were around 0.1 per cent for two years, and 0.7 per cent for 10 years, he said.
He anticipated that UK's growth would fall, to just above zero and it would remain there for the next 12 months. But then, it would rise to two per cent by 2018 to 2019, while inflation would rise to 2.5 per cent and fall back slowly toward the two per cent target, thereafter.
While there would be risks along the way, the BOE's new policy measure would also go a long way to negating those risks, Amey said.
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