The rate cut is now supposed to fight these trends.
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“By acting early and comprehensively, the MPC can reduce uncertainty, bolster confidence, blunt the slowdown and support the necessary adjustments in the United Kingdom economy”, he told a news conference.
“This cut in interest rates was widely expected, but it is really a token gesture which is unlikely to help the economy much in the current situation”, said Andrew Sentance, a senior economic adviser at PwC and one-time member of the BoE’s decision-making counsel.
“We took these steps because the economic outlook has changed markedly”, Carney told reporters in London.
Over the next six months it will buy £60 billion of government bonds, financed by the central bank’s reserves, taking the total stock of assets to £435 billion.
All nine members of the Bank’s monetary policy committee (MPC) voted in favour of the cut, and the Bank left the door open to a further interest rate cut later in the year.
The bank’s Monetary Policy Committee announced its unanimous decision at noon as it unveiled a series of measures created to stimulate the economy.
The central bank boss said policymakers had delivered a “timely, coherent and comprehensive” package of measures and that the rate cut would be felt “immediately in the economy”.
Its latest forecasts predict the economy will nearly flat-line at 0.1% in the third quarter, while it made record downgrades to growth for 2017 and 2018.
The Bank kept its growth forecast at 2% for 2016, thanks only to a far better-than-expected 0.6% rise in the second quarter, but it sharply reduced the outlook to 0.8% in 2017 and 1.8% in 2018.
Thursday’s news sent London’s FTSE 100 index nearly 1.50 percent higher in early afternoon deals, while sterling bounced briefly against the euro and dollar before sliding lower.
As part of its stimulus measures, the Bank has also announced a corporate bond buying programme of up to £10bn.
Bank of England governor Mark Carney has written to Chancellor Philip Hammond to outline the measures taken by the MPC as well as explaining why inflation remains, for now, significantly below its target rate.
The forecast for 2018 has been cut from 2.3% to 1.8%.
FTSE 100 investors – who were all but certain of an interest rate cut – cheered the fresh injection of cheap cash into the economy and sent the market up by 1.5 per cent to 6,732.76 points.
British borrowing costs now stand at their lowest level in the central bank’s 322-year history. The dollar edged up to 101.31 yen from 101.28 yen while the euro fell to $1.1119 from $1.1148.
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“Message one: it is up to the government to implement a ‘comprehensive productivity plan.’ Furthermore, the Bank has severely downgraded its expectations for business investment over the next couple of years”, she said.
