After that disappointment, the BoE made sure to pull out all its monetary firepower this month, not only cutting interest rates for the first time since 2009 but also pledging to buy an extra 60 billion pounds ($103 billion) worth of government bonds using freshly minted cash over the next six months.
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Asian shares joined a rise in global stock prices on Friday after the Bank of England (BoE) launched a potent post-Brexit stimulus campaign, but some caution before a big U.S.jobs report limited gains.
The measures are meant to grease the gears of the economy by making borrowing easier and cheaper, but are unlikely to alone be able to keep the country from sliding into – or close to – recession, analysts say.
The stimulus measures are a pre-emptive strike to bolster confidence after the first weeks of shock over the vote’s outcome. It is unclear what Britain’s future trading relationship will be with the bloc, or what effect the move will have on the financial services industry. That could take years.
To reflect the grim reality, the Bank of England cuts its economic forecasts by the most in nearly two decades, particularly for the period after 2016.
Growth this year was forecast at 2%, unchanged from May’s outlook after a much stronger than expected second-quarter growth figure made up for a slowdown after the European Union referendum. Benchmark 10-year USA yields fell to their lowest in three days, at 1.484%.
“We took these steps because the economic outlook has changed markedly” since the referendum, Carney said in a statement.
Davy Stockbroker’s Conall Mac Coille said the Bank of England moves will weaken sterling but won’t be enough to keep the United Kingdom out of recession – a double blow for Irish exporters to Britain who face the prospect of weaker demand and lower prices when they do sell.
And there may be more in the coming months.
European stocks shot higher and the pound plunged after the Bank of England cut interest rates and announced an additional £170 billion of stimulus to counter Brexit fallout. The measures seemed to exceed investors’ expectations, and the bank said the measures could be expanded later if it proves necessary. The pound sterling fell sharply on the news, hitting a three and a half week low of 84.97 pence against the euro.
Sterling gained 0.3 percent to $1.3144 and 0.2 percent against the euro to 84.73 pence.
Aberdeen Asset Management Chief Economist Lucy O’Carroll said the bank had to act, “more for the sake of its own reputation than the economic benefits”.
The bank’s strong action has been largely well received, but the U.K.’s ability to weather the Brexit will be largely determined by government policy.
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“The vote to leave the European Union has created a period of uncertainty, which will be followed by a period of adjustment as the shape of our new relationship with the European Union becomes clear and the economy responds to that”, Hammond said.
