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Slight fall in U.S. stocks as investors stay cautious amid rates cut
But Broadbent said the BoE would not use it as a back-door way to introduce negative interest rates – something some analysts had speculated about, given Governor Mark Carney’s firm opposition to cutting Bank Rate below zero.
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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?
The Bank of England’s cuts on Thursday in its growth forecasts for next year and its hints of more easing to come underline the central case bank analysts have made for the pound to weaken since June’s vote to leave the European Union. The Labor Department said Thursday applications for unemployment aid rose to 269,000 last week, a level close to historical lows and a positive sign for the job market.
STIMULUS IN THE UK: The Bank of England cut interest rates to new lows and unveiled a raft of stimulus measures that include resuming a bond-buying program to pump money into the economy and offering cheap loans to banks. 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 pound fell against both the dollar and the euro while rates of return on British government bonds sagged. What will really matter is whether the government will also offer a fiscal boost in the autumn, she said.
The Bank also attempted to boost the economy, with a £100bn scheme to force banks to pass on the low interest rate to households and businesses and the purchase of £60bn of United Kingdom government bonds and £10bn of corporate bonds.
The bank will also purchase up to £10bn of corporate bonds. The introduction of the Term Funding Scheme was unanimous, while the corporate-bond buying plan was passed with a margin of 8 to 1, with Forbes voting against it, minutes from the meeting showed.
The Bank kept its growth forecast at 2% for 2016, thanks only to a better than expected first half, but it sharply reduced the outlook to 0.8% in 2017 and 1.8% in 2018.
The BoE’s easing measures hammered sterling, which fell 1.52 percent at $1.3120 GBP=D4 , its largest one-day drop against the dollar in a month.
Growth this year was forecast at 2%, unchanged from May’s outlook after a much stronger than expected second-quarter growth figure made up for a slowdown after the European Union referendum. MSCI’s world stocks index rose 0.1 per cent on Friday.
But he said the powers of the central bank and the treasury, through tweaks to taxes and public spending, aren’t sufficient to fully offset the likely shock.
But Japan’s Nikkei surrendered earlier gains to close flat.
Bank of Japan Deputy Governor Kikuo Iwata said on Thursday that a comprehensive review of the central bank’s monetary policy next month would focus on the transmission mechanism and obstacles to its monetary policy.
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In response, Mr Hammond wrote: “Alongside the actions that the Bank is taking, I am prepared to take any necessary steps to support the economy and promote confidence”.