The pound fell to the day’s lows after the Bank of England slashed interest rates to record lows and boosted its quantitative easing program to offset the effects of the June 23 vote to exit the European Union.
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This is the first rate cut in seven years.
“This is the appropriate response to the economic conditions we find ourselves in”, the Bank of England’s governor, Mark Carney, told a news conference.
The decision drove the GBP lower by 1.6% against the dollar on Thursday as British government bond yields reached another record low even as their shares grew by 1.6%.
Following the Brexit vote, the Bank explained, “the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly”.
The BoE’s new Term Funding Scheme (TFS) – unlike 2012’s Funding for Lending Scheme – was not aimed at boosting lending but instead at ensuring lenders passed on the latest cut in interest rates, Broadbent said.
Sterling has steadied today, recovering just over 0.2% against both the euro and the dollar after the Bank of England drove its biggest daily losses in a month with a package of new stimulus for Britain’s slowing economy.
Thursday meanwhile marked the first rate reduction since March 2009, when the bank cut to the previous historic low of 0.50 percent – and launched the radical QE policy to stimulate lending and growth during the global financial crisis.
And the positive sentiment flowed through to Asia, where Hong Kong was up 1.3 per cent in the afternoon, while Sydney closed up 0.4 per cent and Seoul added 0.9 per cent, Wellington put on 0.1 per cent and Taipei 0.8 per cent.
He said, in his opening statement, that while “some of the adjustments to this new [post-Brexit vote] reality may prove hard, and many will take time…the United Kingdom can handle change”.
The stimulus measures pushed up London’s FTSE 100 share index by 1.59 percent and pulled down the cost of borrowing for the government.
British interest rates are now at their lowest level in the Bank of England’s (BoE) 322-year history.
However, Carney made it clear, as he has before, that negative interest is firmly off the table. It predicted that the sharp post-Brexit fall in the pound and the stimulus package would drive annual inflation back to the BOE’s 2% target by next year.
“Despite the fact that the [BOE] has lowered the growth forecast and initiated another bond purchase program, investors are certain that it is only a starting point for the bank”, said Naeem Aslam, chief market analyst at Think Markets UK, in a note.
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She said Kent is in a fortunate position to have access to interest free loans through various Kent County Council schemes and that firms should be bold in their outlook.
