The Bank of England cut interest rates for the first time since 2009 on Thursday and said it would buy 60 billion pounds of government debt to ease the blow from Britain’s June 23 vote to leave the European Union.
Advertisement
Elsewhere, Asian stocks rose following a positive lead from Wall Street, as investors look ahead to both the BoE and United States jobs data. As such, it slashed its growth outlook for next year and 2018.
On Thursday, the BoE also unveiled a new stimulus package, indicating it will boost its quantitative easing programme by another £60bn ($70bn), bringing the tally up to £435bn.
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%.
The pound fell to 1.3116 USA dollars from 1.3317 dollars on Wednesday.
Michael Hewson at CMC Markets said the British central bank may have overreacted to the Brexit shock, possibly without making much difference to the economic outlook. The shares are outperforming the benchmark FTSE 100 index which has climbed marginally in positive territory and now stands 0.33 percent higher at 6,762.50 points.
“There is a clear case for stimulus, and stimulus now”, Mark J. Carney, the bank’s governor, said at a news conference on Thursday.
The International Monetary Fund has cut its growth forecast for Britain’s economy, which had been one of the region’s strongest since the financial crisis.
The BOE package “snapped a streak of underwhelming action by global central banks recently” and “should keep the pound broadly pressured”, said Omer Esiner of Commonwealth Foreign Exchange. Forbes also voted against the other eight members on the plan to buy corporate bonds, given she was “particularly concerned about excessive stimulus at this stage”.
Investors risk appetite have also been bolstered by the sharp rally seen in crude oil prices overnight, but the caution in the market being spurred by the highly anticipated US Non-farm payrolls for July has kept the prices from jumping too far.
The dollar edged up to 101.31 yen from 101.28 yen while the euro fell to $1.1119 from $1.1148.
“At its meeting … the MPC voted for a package of measures created to provide additional support to growth and to achieve a sustainable return of inflation to the (2.0-percent) target”, the bank said. Following the strong increase in June, a majority of economists are now expecting a weaker number with job growth around 180K as Wednesday’s ADP employment report showed signs of softness in the employment components of both ISM reports.
Advertisement
The futures market is pricing in a 50-50 chance of another cut by year end.
