Policymakers on the Monetary Policy Committee (MPC) voted unanimously to cut rates to a new historic low of 0.25% from 0.5% – the first cut since March 2009, when the Bank reduced rates at the height of the financial crisis.
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The Bank of England swung into action on Thursday against the economic shock from Britain’s vote to leave the European Union, cutting interest rates to near nothing and unleashing billions of pounds to cushion the Brexit blow.
The MPC said that following the vote to leave the European Union, the outlook for growth in the short to medium term has “weakened markedly”.
Sterling fell sharply and British gilt yields hit record lows on Thursday, after the Bank of England cut interest rates for the first time since 2009 on Thursday and said it would buy 60 billion pounds of government debt.
The Bank announced the move as part of stimulus package for the economy, which will also see it buy £60bn of government bonds and £10bn of corporate bonds. The BOE slashed its forecast for growth next year to just 0.8%, from 2.3% previously-its biggest ever downgrade between two sets of quarterly forecasts.
“With interest rates at a record low now is a particularly good time to speak to a mortgage adviser to understand the competitive products available”.
Officials also said they expect to cut their benchmark rate closer to zero later this year.
She said: “The view of the IoD nationally is that interest rate cuts alone are not enough to bridge the confidence gap”.
The Bank of England surprised markets three weeks ago by keeping interest rates on hold, but it signaled then that action was imminent.
Data on auto registrations out on Thursday, however, hinted at a slowdown in consumer spending – a key pillar of economic growth recently – with private registrations dropping 6.1 per cent year-on-year in July.
Bank of England governor Mark Carney said the TFS will allow banks to borrow directly from the BoE with £100bn available to finance the scheme. South Korea’s Kospi added 0.3 percent to 2,000.03 and Hong Kong’s Hang Seng index gained 0.4 percent to 21,832.23.
It will also purchase £10 billion of sterling denominated investment-grade corporate bonds, but only from firms that make a “material contribution” to the United Kingdom economy.
“Given the evidence of a significant shock to confidence, subdued current and expected inflation, and the lags with which monetary policy works, the risks of not easing policy greatly exceed the risks of stimulating too much”, said Vernazza. “The falling pound means that inflationary pressures are already building up, and today’s decision will exacerbate them”, he said.
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But there will be a focus on any hint of extra government spending to support the economy, after Mr Hammond said he may use a half-year budget statement in the autumn to reset fiscal policy.
