ANALYST’S TAKE: “The injection of extra liquidity demonstrates how serious the (Bank of England) views the potential economic damage done by the Brexit vote”, said Jake Trask, currency analyst at UKForex.
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The boost in risk appetite flowed through to the commodity markets and allowed oil to gain strongly on the day, as the September crude contract rose $1.10 at US$41.93 per barrel.
The central bank slashed its growth forecasts from next year onwards, underscoring the contraction underway. European stocks are rising and the British pound is skidding after the Bank of England cut interest rates to shore up the British economy after the nation’s vote to leave the European Union.
“As interest rates are close to zero”, the bank said, “it is likely to be hard for some banks and building societies to reduce deposit rates much further, which in turn might limit their ability to cut their lending rates”.
The BOE also announced a 100-billion pound ($132 billion) bank program, called the Term-Funding Scheme, to help lower borrowings costs feed through to the real economy as rates approach zero.
“Equities were muted in early trading after positive sessions on Wall Street and in Asia, with the market looking to the Bank of England’s interest rate call when a cut is widely expected”, said Russ Mould, investment director at brokerage AJ Bell.
“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 value of the British pound fell sharply on the announcement of the measures, as lower rates tend to weigh on a currency.
In addition to the cut in rates to a record low 0.25 per cent, the BoE 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.
Meanwhile, the USA economy is growing, albeit at a lower growth rate than some had hoped.
She said Kent is in a fortunate position to have access to interest free loans through various Kent County Council schemes and that firms should be bold in their outlook.
“The consequences of Brexit – and the path for economic growth in the longer term – rest more on industrial and trade policy than on monetary action”.
From an initial estimate of “healthy” growth for 2017, Mark Carney anticipates “stagnation” for the British economy (0,8%) next year.
“The minutes said there was a majority that expected to cut interest rates again were the economy to unfold in line with forecasts, and yes, I was one of the majority”, he said.
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“It is not just in the euro zone or in Japan, but even here in Britain we have a situation where central banks have to keep easing to offset headwinds to the domestic and global economy”, Rabobank strategist Matt Cairns said.
