United Kingdom government bonds due to repaid in 10 years time saw their yield – the amount of interest paid – fall to a record low.
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The British pound traded at $1.3325, keeping some distance from its three-decade low of $1.2798 hit nearly a month ago, although currency markets may be somewhat ambivalent over how to react to the BoE decision – buy sterling if the BoE cuts, sell if it doesn’t, or vice versa?
Bank policymakers’ hands were forced after the country voted on June 23 to quit the European Union, a move the BOE warned could send Britain into recession. It said the measures announced today could be expanded later if needed.
Britain’s lowest ever interest rate of just a quarter of one percent was given a mixed reception Friday as commentators and markets digested the decision by the Bank of England.
She added: “What is vital however is that the Government now presses ahead develops a clear plan and timetable for Brexit negotiations”.
“That makes it very likely that further cuts to the policy rate and expansions of the BoE’s other easing measures will be forthcoming over the coming months, providing further downside risks to the pound”, he said. The bank’s program of quantitative easing – already worth £375 billion – has been on hold since July 2012.
The central bank said it expected the economy to stagnate for the rest of 2016 and suffer weak growth throughout next year.
Ben Brettell, the senior economist at Hargreaves Lansdown said that central bank had little choice but to do something.
U.S. stocks wavered on Thursday and finished barely higher as an interest-rate cut by the Bank of England proved not to be enough to get investors out of their recent cautious mode.
The Term Funding Scheme (TFS) is important, given the Bank’s aim of making sure that the base rate cut is passed on to make borrowing costs cheaper for households and businesses.
“It’s not really the supply of credit that is the constraint on the economy”, he said. Fitch expect the referendum will take a significant toll on the economy, despite sterling’s fall in potentially supporting export sales, their latest growth forecasts are 1.7% in 2016, which is down from 1.9% in May, and 0.9% in 2017 and 2018, a reduction from 2%.
“There are limits to what monetary policy, indeed any demand management policy can do – conventional fiscal policy as well – to offset what is a structural effect on the economy”, he said.
Hammond hinted that was possible, saying in a letter to Carney on Thursday that he was “prepared to take any necessary steps to support the economy and promote confidence”. Its stock gave up $2.08, or 14 percent, to $12.76.
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A strong reading there could help the dollar by reviving expectations that the Federal Reserve could raise interest rates later in the year, a scenario that had been completely discarded in the days that followed the shocks from Brexit vote.
