The U.S. Treasury 10-year note yield was little changed at 1.502 percent after dropping 25 basis points overnight during a broad post-BoE rally in bond markets, which took the 10-year gilt yield to a record low of 0.639 percent.
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The bank will also purchase up to £10bn of corporate bonds.
The Bank cut official interest rates to a new record low of 0.25% from 0.5% and signalled they would be reduced further in coming months.
Deputy Governor Ben Broadbent said the pound’s drop after the Bank of England’s decision was “relatively small” compared with its fall after the Brexit vote.
The move comes after BOE Governor Mark Carney warned that there was “no excuse” for high street lenders not to pass yesterday’s cut in interest rates on to customers.
These efforts have been criticised in some quarters, including from a former colleague on the Bank’s interest rate-setting Monetary Policy Committee. It is also injecting an additional 60 billion pounds ($79 billion) in new money into the economy through a bond-buying scheme, and it will buy up to 10 billion pounds in United Kingdom corporate bonds. This is created to “provide funding for banks at interest rates close to Bank Rate” and therefore “help reinforce the transmission of the reduction in Bank Rate to the real economy to ensure that households and firms benefit from the MPC’s actions”.
The central bank slashed its growth forecasts from next year onwards, underscoring the contraction underway.
Carney said uncertainty from the Brexit vote will mean less demand, so businesses will cut their output reducing GDP growth and putting people out of work: “The combination of these demand and supply factors means that cumulative GDPgrowth is expected to be 2.5 percent lower by the end of the forecast period than was the case in May”.
The corporate bond purchase was also approved with a cap of 10 billion pounds.
London dipped 0.1 percent in tentative morning deals as investors waited on whether the BoE will unveil a quarter-point reduction to combat the economic impact of Britain’s shock European Union exit vote.
CURRENCIES: The pound fell 1.5 percent to $1.3132 by early afternoon in London.
“Based on our analysis, the payroll growth in July is likely to be pretty strong”, said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank. Benchmark U.S. crude rose 69 cents, or 1.7 percent, to $41.52 per barrel in NY.
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The Bank’s intervention to shore up confidence with this new package was welcomed by the chancellor, Philip Hammond. While the pace of hiring and economic growth slowed in the first half of the year, consumers may boost spending in the months to come. “You would have to think through it very seriously, but that is a matter for the MPC and I am not in a position to give a steer on it one way or another”, he said.
