“Governor Carney stated pretty clearly that the “lower bound” in the U.K.is not below zero”, said David Schnautz, a fixed-income strategist at Commerzbank AG in London. It is also expanding its bond-buying stimulus program to pump an additional 60 billion pounds ($79 billion) in new money into the economy.
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The ADP report raised speculation that the US non-farm payrolls on Friday may be strong enough to revive expectations for a Federal Reserve interest rate hike later this year, after it lifted rates for the first time in almost a decade in December.
The Bank of England has cut interest rates at the monthly meeting of the Monetary Policy Committee (MPC), from 0.5% to 0.25%.
Sterling’s fall may boost United Kingdom exports, but will still take “a significant toll on the economy”, Fitch said. Policy makers also expanded the bank’s quantitative easing program, taking asset purchases to 435 billion pounds ($572 billion).
“You only need the hard data to come in roughly as poor as some of the early surveys suggest and you should see the market factor in” more QE, or a further rate cut this year. “Alongside the actions the Bank is taking, I am prepared to take any necessary steps to support the economy and promote confidence”, Hammond said in a letter to the central bank.
The launch of the policy easing measures hammered sterling and weighed on bond yields. “The falling pound means that inflationary pressures are already building up, and today’s decision will exacerbate them”, he said.
The central bank slashed its key interest rate by a quarter-point to 0.25 percent, the first in seven years. The BoE left its forecast for growth this year steady at 2.0 percent, as the economy expanded faster in the first half of 2016 than it had expected in May.
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. 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?
And the positive sentiment flowed through to Asia, where Tokyo ended the morning 0.1 percent higher, while Hong Kong added 1.0 percent, Sydney gained 0.4 percent and Seoul put on 0.5 percent.
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.
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The BOE said it doesn’t expect the scheme to lead to much faster aggregate loan growth.
