August 4, 2016 – The Bank of England cut interest rates today for the first time since 2009, revived its bond-buying programme and said it would take “whatever action is necessary” to achieve stability in the wake of Britain’s vote to leave the European Union.
The central bank said it expected the economy to stagnate for the rest of 2016 and suffer weak growth throughout next year. It cut its main lending rate to a record low 0.25 percent from 0.5 percent, in line with market expectations.
But it also launched two new schemes, one to buy 10 billion pounds of high-grade corporate bonds and another – potentially worth up to 100 billion pounds – to ensure banks keep lending even after the cut in interest rates.
Sterling fell 1 percent against the dollar following the announcement, while British government bond yields hit record lows and the main share index rose by 1 percent.
Most Monetary Policy Committee (MPC) members also expected to cut Bank Rate again this year to a rate “close to, but a little above zero”, if the economy performed as poorly as forecast.
“Following the United Kingdom’s vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly,” the central bank said in its quarterly Inflation Report.
Bank of England Governor Mark Carney he had acted because the economic outlook had changed markedly following the Brexit vote.
“By acting early and comprehensively, the MPC can reduce uncertainty, bolster confidence, blunt the slowdown and support the necessary adjustments in the UK economy,” he told a news conference.
“The Bank continues to stand ready to take whatever action is needed to achieve its objectives for monetary and financial stability as the UK adjusts to new realities, and moves forward to seize new opportunities, outside the EU,” Carney said.
Finance Minister Philip Hammond welcomed the rate cut and said he and Carney had “the tools we need to support the economy as we begin this new chapter and address the challenges ahead”.