Bank of England cuts interest rates to 0.25% and announces stimulus package

​The Bank of England has decided to cut interest rates to 0.25 per cent as part of a wider package of measures aimed at boosting the economy.

Aug 04, 2016

The Bank of England has decided to cut interest rates to 0.25 per cent as part of a wider package of measures aimed at boosting the economy.

The programme of quantitative easing has been increased by £60bn and now stands at £435bn, with the Monetary Policy Committee voting 6-3 in favour of the move.

As part of its stimulus measures, the Bank has also announced a corporate bond buying programme of up to £10bn.

It has also announced the launch of a "Term Funding Scheme", which will provide funding for banks at close to the base rate. The Bank says this reflects lenders' difficulty in cutting saving rates beyond their existing low levels, which may have prevented further cuts to mortgage rates.

The Term Funding Scheme aims to ensure the cut to interest rates feeds through to households and firms, and to support lending.

The interest rate cut marks the first time the Bank has moved on interest rates since 2009. The vote to cut rates and introduce the Term Funding Scheme was unanimous.

The Bank says the majority of MPC members expect interest rates to be cut further during the year to "close to, but a little above zero".

In a letter to Bank of England governor Mark Carney, Chancellor Philip Hammond says: "Alongside the actions the Bank is taking, I am prepared to take any necessary steps to support the economy and promote confidence.

"The UK starts from a position of economic strength as we address the challenges and take advantage of the opportunities that will arise as we forge a new relationship with the EU.

"The Government will set out its fiscal plans at Autumn Statement in the normal way, once the Office for Budget Responsibility has produced a new forecast."

Capital Economics chief European economist Jonathan Loynes says: "The MPC has made good on its pledge to implement a package of policy measures to support the economy after the EU referendum.

"Together, the measures are close to our expectations and should meet or even exceed market expectations after July’s let-down.

"If nothing else, 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."

M&G Investments macro investment fund manager Eric Lonergan says the move is the “first serious decision Mark Carney has made since becoming governor”.

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John 3 months ago

John 3 months ago