The pound fell against both the dollar and the euro while rates of return on British government bonds sagged.
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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.
The BoE will also buy £10 billion of corporate debt, while it also unveiled a new scheme worth up to £100 billion to encourage banks to lend to households and businesses. Carney said following the referendum that some monetary easing would be necessary over the summer to limit the fallout from the Brexit vote.
The bank cut its growth forecast for 2017 to 0.8% from 2.3% in May, and trimmed its 2018 forecast to 1.8% from 2.3%, but said the United Kingdom economy would probably avoid an outright recession.
The Dow Jones industrial average .DJI fell 2.95 points, or 0.02 percent, to close at 18,352.05, the S&P 500 .SPX gained 0.46 point, or 0.02 percent, to finish at 2,164.25 and the Nasdaq Composite .IXIC added 6.51 points, or 0.13 percent, to end at 5,166.25.
He has been told by Bank Governor Mark Carney that the British government also needs to do more to help the economy get over the impact from the Brexit vote.
Inflation is forecasted to increase thanks to the weakness of the pound, with the Central Bank now anticipating to hit their 2% target in Q4 of 2017 as opposed to Q2 of 2018 as previously anticipated.
The Australian and New Zealand dollars, which have suffered in the past week from worries that central banks globally would not meet market expectations for further policy easing, rose around half a percent against the US dollar.
The much awaited Bank of England interest rate cut has been announced. Unemployment rate is also expected to rise to 5.4% in Q3 2016 compared to a previous forecast of 4.9%.
This week’s MPC meeting was the last one before it moves to meeting only eight times a year, meaning that it is not scheduled to meet again until 3 November, although it can call an extra meeting before then if it wants to. 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 report for June was stronger than expected, but that followed shockingly weak job growth in May.
New finance minister Philip Hammond, who replaced George Osborne last month, authorised the bond purchases and the TFS.
The lowest cost of funding, the 0.25 percent Bank Rate, will be for banks that maintain or expand net lending to the economy and the BoE will charge a penalty rate if banks reduce net lending. “The payroll growth in July is likely to be pretty strong”.
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”.
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“I think the highlight today is that even though global equities are more or less flat for the day, we’re seeing a pick up in risk appetite and the commodities space is doing well this morning”, said Scott Smith, regional director of hedging solutions at Cambridge Global Payments.
