Pound Falls as UK Trims Interest Rates

Bank of England Governor Mark Carney at the V&A museum in London, announcing the theme for the next £20 pound note (File)

The Bank of England announced a range of measures to stimulate the UK economy including buying £60bn of UK government bonds and £10bn of corporate bonds…reports Asian Lite News

Bank of England Governor Mark Carney at the V&A museum in London, announcing the theme for the next £20 pound note (File)
Bank of England Governor Mark Carney at the V&A museum in London, announcing the theme for the next £20 pound note (File)

The Bank also announced the biggest cut to its growth forecasts since it started making them in 1983, BBC reported.

It has reduced its growth prediction for 2017 from the 2.3% it was expecting in May to 0.8%.

The decision to cut interest rates to 0.25% was approved unanimously by the nine members of the Monetary Policy Committee (MPC) and is the first change in interest rates since March 2009.

“I welcome the decision of the Monetary Policy Committee,” Chancellor Philip Hammond said. “The vote to leave the EU has created a period of uncertainty, which will be followed by a period of adjustment as the shape of our new relationship with the EU becomes clear and the economy responds to that.

“It’s right that monetary policy is used to support the economy through this period of adjustment. That’s why I have authorised the Governor’s request for an increase in asset purchases and a new lending scheme to support the economy, helping ensure that the benefit of low interest rates is passed on by the banks to households and businesses.

“As recent figures on jobs and growth have shown, we enter this period of adjustment from a position of economic strength. And the Governor and I have the tools we need to support the economy as we begin this new chapter and address the challenges ahead.”

The chancellor earlier authorised the Bank of England’s decision to create an extra £70billion to help fight off the effects of Brexit in what might be his first official act.

Businesses in Greater Birmingham meanwhile called on the government to spell out its timeline on economic strategy in the wake of the Bank of England’s decision today to cut interest rates to 0.25 per cent.

Greater Birmingham Chambers of Commerce (GBCC) said the Monetary Policy Committee’s unanimous decision to reduce rates from 0.50 per cent for the first time in over seven years indicated concerns about confidence in the economy, which would unsettle businesses.

The committee also decided to issue £60 billion of Quantitative Easing in a majority decision.

GBCC chief executive Paul Faulkner said: “The Bank of England have received their fair share of praise in the wake of the Brexit vote for their strong and decisive leadership.

“However, there’s no denying that the unanimous decision to reduce interest rates by the Bank of England today to a record low of 0.25 per cent, as well as implementing £60 billion of Quantitative Easing indicates concerns about confidence in the economy. Bad news for savers and better news for borrowers, this latest move is clearly aimed at getting Britain, and British businesses, investing and spending.

“Locally, we’re seeing mixed reports on the impact of the referendum vote to date from businesses. For many it is business as usual (and in a number of cases, better than usual), although some have also been hit hard by clients pulling contracts.

“What is still palpable is a sense of confidence in the city-region, with HS2, HSBC UK and the visible number of developments in Birmingham in particular continuing to buoy spirits. There’s still plenty of business to be done. “The sense of uncertainty around when Article 50 will be activated and the Brexit negotiations will begin in earnest is challenging along with key elements of domestic policy.

“Theresa May has recently declared that Article 50 won’t be activated until next year at the earliest. We would like to see a clearer timeline emerging as well as confirmation of the new Government’s strategy for exports, infrastructure and key policy changes such as the apprenticeship levy.”