RBS reviewing whether to pass on interest rate reduction to its customers

The Bank acknowledged that because of how close to zero interest rates were even before the cut, “it is likely to be hard for some banks and building societies to reduce deposit rates much further, which in turn might limit their ability to cut their lending rates”.

The pound turned sharply lower Thursday after the Bank of England cut interest rates for the first time in seven years and announced a fresh round of stimulus measures meant to mitigate the effect of the U.K’s decision to leave the European Union.

The BoE has also started to buy corporate bonds in big quantities for the first time, and Broadbent did not rule out purchases of funds holding company shares in future, though it is not something the MPC has considered yet.

“Given our more hawkish view that the Fed will deliver a rate hike in September, we think there is a lot of room on the downside and target $1.24 in cable”. The shares are outperforming the benchmark FTSE 100 index which has climbed marginally in positive territory and now stands 0.33 percent higher at 6,762.50 points.

“There are limits to what monetary policy, indeed any demand-management policy can do – conventional fiscal policy as well – to offset what is a structural effect on the economy”.

“The key point for us after this data is that the USA side of the equation has not so far come into play on sterling”, said Sam Lynton-Brown, a strategist with BNP Paribas in London.

Philip Shaw, an economist at Investec, said Broadbent’s comments added to the sense that the BoE was already laying the groundwork for a cut in rates to 0.1 percent in November, but left open what the BoE would do if Britain entered recession.

The FT reported today that HSBC would pass the 25 basis point cut on to all of its customers with tracker mortgages that shadow moves in the BoE base rate.

Bank Governor Mark Carney stopped short of saying the United Kingdom would likely fall into recession were it not for its rate cut and emergency package.

Broadbent’s words echoed Mark Carney’s stance, after the BoE Governor admitted on Thursday that monetary policy might not be enough to prevent Britain’s economy from slowing down even further.

“It’s obvious the world is now buying central banks rather than the fundamentals attached to the economies”, Lowman said.

“The mortgage market is now very competitive and we expect to see lenders launching even more exciting new products soon”.