BOE Cuts Interest Rates to Record Low

Published by Gold Broker | Aug 4, 2016 | Articles

Announces Stimulus Measures to Stave Off Recession

The Bank of England today cut its official interest rate for the first time in 7 years, from 0.5 percent to 0.25 percent. The reduction is one of four measures in a plan to prop up the banks and prevent the British economy from sinking into recession after the “Brexit” referendum, in which Britons voted to leave the European Union.

Governor Says “Economy Really Needs It”

Bank of England Governor Mark Carney said the four-point plan is needed to mitigate job losses, reduced spending and other economic woes as a result of the country’s coming detachment from the European Union trading zone. He appealed to lenders to let borrowers profit from lower rates, threatening them with penalties and concocting a financial package to the banks to sweeten the pot, as much as 100 billion pounds in new funding. That’s in addition to some 70 billion pounds to buy government and corporate bonds. Carney said, “There is a clear case for stimulus … the economy really needs it.”

Growth Grinds to a Halt

The Governor is saying out loud what the numbers say on the page. The growth forecast for the United Kingdom is grim, coming to a near standstill over the coming months and remaining weak for 2017 and 2018. The Bank’s pre-Brexit vote prediction for economic growth next year was 2.3%. That has been revised to a dismal 0.8%. The 2.3% estimate for 2018 now stands at 1.8%. All of this is, of course, still up in the air as the negotiations for leaving the European Union have yet to get underway. The UK’s future trading relationships are, to say the least, uncertain.

Nowhere to Go But Down

This first interest rate decrease since 2009 will bring relief to borrowers but it hurts savers, who have already been long-frustrated. Rock-bottom rates have brought them low returns for years. That’s been cut in half once again. And the slashing may not be over. The BOE Monetary Policy Committee has already discussed expanding the credit discount, to as low as 0.1%. Carney has, however, said he does not favor negative interest rates.

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Gold Broker  Editorial Staff


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