Bank of England cuts interest rates to historic low
The Bank of England has cut interest rates for the first time in seven years to a historic low of 0.25%.
It is also to invest a further £60bn into its quantitative easing programme, bringing the total up to £435bn.
The Monetary Policy Committee (MPC) voted to reduce interest rates from 0.5% in an attempt to stimulate the economy following the UK’s decision to leave the European Union.
It is the first change to interest rates since the height of the financial crisis in March 2009.
The full package of measures decided upon also included the purchase of up to £10bn of UK corporate bonds and a new term funding scheme to reinforce the pass-through of the cut in bank rate.
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 MPC said.
“Given the extent of the likely weakness in demand relative to supply, the MPC judges it appropriate to provide additional stimulus to the economy, thereby reducing the amount of spare capacity at the cost of a temporary period of above-target inflation.”
Although GDP data for the second quarter of the year, published last week, came in at 0.6%, this was driven by a strong performance in April.
June was thought to have been much weaker while other data has shown a slowdown in activity and a drop in confidence since the result of the EU referendum.
Bank of England governor Mark Carney previously indicated that the MPC would be cutting rates this year in the wake of Brexit turmoil in the markets. Since the vote, the Bank of England has relaxed rules to allow banks to lend up to an additional £150bn.
It was anticipated the MPC would cut interest rates at its July meeting, but the committee voted 8-1 to maintain the rate at 0.5%.
Chloe Webber of Nottingham-based Company Check, said: “The cut’s no surprise given all of the indications we had that it was on its way. The big news is the fact that market uncertainty was deemed so potentially damaging to the economy that we’ve now got the first cut since 2009. 0.25% is a historic low and there’s no doubt in my mind that it will encourage firms to spend rather than save. It could be a shrewd move by the Bank of England; which has acted swiftly so far to allay any Brexit fears. Investment equals growth and a return to confidence, or at least that’s what we’re all banking on.”
Interest rates, 1975-2016:
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