Acting on its chief economist’s wish to use “a sledgehammer to crack a nut”, the BoE reduced interest rates by 25 basis points to a record-low 0.25pc and announced further moves aimed at pumping cheap credit into the British economy. He also announced 60 billion pounds in BoE purchases of British government gilts and 10 billion pounds purchases of corporate bonds during the remainder of 2016; as well as 100 billion pounds for a new “funding for lending” program of BoE cheap loans to banks which are “in a position to” lend into the British economy.
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With the BoE now out of the way, the market’s focus is shifting to the USA jobs report due at 1230 GMT.
Following its latest meeting, the Bank of England’s Monetary Policy Committee has voted, as expected, to reduce the base rate of interest down to a record low of 0.25%. Although surprisingly tepid US second-quarter GDP growth figures published last Friday have dented the dollar, the greenback has recovered slowly.
Economists polled by Reuters expect US employers to have added 180,000 jobs, compared with 287,000 in June.
The dollar index.DXY was steady at 95.775 after gaining 0.2 percent on Thursday.
The British pound GBP=D4 crawled up 0.2 percent to $1.3130 GBP=D4 after retreating 1.7 percent overnight. “I expect a figure above 200,000. That should be positive for the dollar”, said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.
Meanwhile, the average wage earnings seen as a significant factor in measuring the value of any inflationary pressure, are anticipated to rally by about 0.2 percent.
Sterling dropped 0.2 percent to $1.3326 as of 4:22 p.m.in London, having gained 0.1 percent earlier. Now that sterling has broken below trend line support in place during its recovery from a three-decade low of $1.2798 on July 6, the currency is at risk of testing that low again, some analysts said. MSCI’s world equity index climbed for the second consecutive day, while emerging equities rose 1%, in view of one-year highs.
The UK’s first interest rate cut since 2009 was accompanied by a pledge to buy £60bn of government bonds with newly created money over the next six months, and two new stimulus schemes. The RBA said core inflation was likely to remain below target all the way to 2018 providing scope for the economy to run even faster.
MacCoille compared yesterday’s 0.25pc rate cut unfavourably to the 5.25pc slashed by the Bank of England in 2008 when the financial crisis struck.
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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.
