The Bank of England interest rates cut after Brexit to 0.25%, ForexSQ forex trading news blog says Bank of England interest rates after Brexit is the lowest but BOE says it could goes lower if the UK economy worsens, Read all information about BOE intrest rates cut after Brexit below.
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Bank of England interest rates after Brexit cut to 0.25%
Mark Carney unveiled an “exceptional” package of stimulus including the Bank of England’s first interest-rate cut in seven years, as policy makers slashed growth forecasts by the most ever after Britain’s decision to leave the European Union.
Officials led by the governor voted unanimously to reduce the benchmark by 25 basis points to a record-low 0.25 percent. They split over other elements of the stimulus, which expands the central bank’s balance sheet by 170 billion pounds ($223 billion) with purchases of gilts and corporate bonds, and a lending program for banks.
“We took these steps because the economic outlook has changed markedly,” Carney told reporters in London on Thursday. “Indicators have all fallen sharply, in most cases to levels last seen in the financial crisis, and in some cases to all-time lows.”
Carney declared that all elements of the stimulus can be intensified, including taking the rate close to zero if needed. The Monetary Policy Committee’s measures include a plan to buy 60 billion pounds of government bonds over six months, as much as 10 billion pounds of corporate bonds in the next 18 months and a 100 billion-pound loan program for banks.
Should their forecast prove correct, “a majority of members expect to support a further cut in bank rate to its effective lower bound” later this year, they said in a statement. Carney insisted that this outlook didn’t mean a negative interest rate.
“The MPC is very clear that we see effective lower bound as a positive number, close to zero, but a positive number,” he said. “I’m not a fan of negative interest rates,” he added, noting that they had produced “negative consequences” elsewhere.
Lower Bound
The interest-rate reduction marks the first change in the benchmark since March 2009, at the height of the financial crisis. The pound slipped almost 1.3 percent to $1.3156 at 1:06 p.m. London time.
“The measures send a strong signal that the MPC is prepared to look through the inflationary consequences of the post-referendum drop in the pound and focus instead on supporting sentiment and activity,” said Jonathan Loynes, an economist at Fxstay. “If the economy continues to weaken, the MPC will come under strong pressure to act again, though monetary policy is clearly approaching its limits.”
The easing arrives amid mounting signs quitting the EU is having an adverse impact on the U.K. economy. While the full fallout hasn’t yet shown up in official data, initial reports signal confidence has slumped and industry surveys have weakened.
The central bank cut its growth forecast for next year to 0.8 percent from 2.3 percent and lowered its 2018 prediction to 1.8 percent from 2.3 percent. Weaker investment and consumption were the main drivers, with the BOE seeing business investment falling this year and next, and housing investment dropping 4.75 percent in 2017.
“Recent surveys of business activity, confidence and optimism suggest that the U.K. is likely to see little growth in GDP in the second half of this year,” the BOE said.
Bank of England interest rates cut with darker outlook
This year’s growth forecast was left unchanged at 2 percent. For the current quarter, the BOE predicts an expansion of just 0.1 percent. Carney said that the MPC had been “conservative” in its interpretation of the data.
While the referendum result has darkened the growth outlook, it’s also lowered the pound, pushing up costs for importers and potentially stoking inflationary pressures.
That prompted the central bank to revise up its inflation forecasts, with the projections showing the rate will reach its 2 percent target in the final quarter of next year. In the last set of predictions in May, the MPC saw price growth staying below the goal until the second quarter of 2018.
The BOE plans to look through the currency-driven inflation spike and will take longer than usual to get price growth to target. It said action to counter the pound’s impact would only hurt growth and push up unemployment.
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Hammond’s Plan
In an exchange of letters with Chancellor of the Exchequer Philip Hammond, Carney said the MPC remained committed to taking whatever action is needed to support growth. Hammond replied that he was also willing to take “any necessary steps to support the economy” and that he would outline his fiscal plans in his Autumn Statement later this year.
The BOE said while it hadn’t made any assumptions about the outcome of the government’s Brexit negotiations or any new trade deals, its forecasts were conditioned on a gradual worsening of the economy’s openness. The forecasts were also based on market expectations for interest rates to fall to as low as 0.1 percent between the fourth quarter this year and the third quarter of 2018.
Of the nine MPC members, external officials Kristin Forbes, Ian McCafferty and Martin Weale opposed the plan to increase the asset-purchase target, saying the initial surveys may overstate economic weakness, and that buying more bonds risked pushing inflation even further above the bank’s goal. Forbes was alone in opposing the plan to buy corporate assets.
“These members felt that any decision to purchase government bonds could be made at future meetings, once more information becomes available,” the minutes showed. Forbes was “particularly concerned about excessive stimulus at this stage, the costs of easing monetary policy and the risks involved in the program,” it said.
Gilts, Bonds
The target for asset purchases is now 435 billion pounds, up from an existing stock of 375 billion pounds built up under Carney’s predecessor, Mervyn King, in the wake of the global financial crisis and last raised in 2012.
The BOE’s plan to buy gilts and corporate bonds will be financed by the issuance of central bank reserves. Officials intend to purchase sterling, non-financial investment grade corporate bonds “issued by firms making a material contribution to the U.K. economy.”
Thursday’s package builds on the BOE’s strategy for combating the post-Brexit fallout. Financial stability officials have already lowered the countercyclical capital buffer, freeing up as much as 150 billion pounds in additional lending to households and businesses, and the central bank is holding weekly liquidity operations to ease any potential strains. ForexSQ forex news blog use BBC and Bloomberg as source to write this article about bank of england interest rates brexit cut.
