The Bank of England met on Thursday and voted 9-0 in favor of an interest rate cut.
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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. It also agreed to pump an additional 60 billion pounds ($79 billion) of new money into the economy through the purchase of government bonds. Although all nine members of the BOE’s Monetary Policy Committee backed a rate cut, three voted against government bond purchases, arguing it would be wiser to wait for more data to determine what extra stimulus is needed. The cut in Bank Rate and the measure meant to ensure banks passed it on to consumers – known as the Term Funding Scheme (TFS) – gained unanimous support.
The Dow Jones industrial average declined 2.95 points at 18,352.05, the broader S&P 500 composite index rose 0.46 points to 2,164.25 and the Nasdaq composite gained 6.51 points to 5,166.25.
Sterling fell 1.2 percent against the dollar following the announcement, while British government bond yields hit record lows and the main share index rose by almost 2 percent. That includes another cut to interest rates “close to, but a little above, zero” if incoming economic data proves broadly consistent with the new forecasts the Bank of England compiled Thursday.
Governor Mark Carney indicated after the European Union referendum the bank would be likely to take action to combat any slowdown caused by the Brexit vote.
Barclays, meanwhile, said that the low interest rates would be passed onto consumers, promising a mortgage rate cut of 0.25 percent. One advantage the pound continues to have over some of its major peers are higher gilt rates.
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 pound did fall very sharply immediately after the referendum and has since been relatively stable”, he said.
“The BoE therefore delivered on market expectations for rate cuts, over-delivered on quantitative easing, both in terms of size and composition, and sent a more aggressive-than-expected signal on future rate cuts”, said Sam Lynton-Brown, FX strategist at BNP Paribas in London.
The extensive series of measures was revealed with the central bank predicting that inflation would rise above its 2% target as a result of the falling value of the pound.
“The minutes said there was a majority that expected to vote to cut interest rates again were the economy to unfold as we had forecast and, yes, I was one of the majority”, he said.
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Brent crude futures rose 1.0 percent on Thursday to $43.55 per barrel, extending its recovery from Monday’s four-month low of $41.41 while US crude futures gained 1.2 percent to $41.33 per barrel. “This suggests monetary policy will remain highly accommodative for much of the cyclical horizon”, PIMCO’s head of Sterling Portfolios Mike Amey said in a note.
