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UK interest rates cut to a record low of 0.25%

The Bank of England has cut interest rates from 0.5% to 0.25% in their first cuts since 2009

Yesterday, The Bank of England announced changes to stimulate the UK economy.

Amidst fears that Brexit could fuel inflation and increase unemployment, the bank’s monetary policy unveiled a four-point plan to soften the blow of the EU referendum vote.

The bank significantly reduced their forecasts for the UK’s economic growth and further implied that without these measures, the UK would suffer another economic downturn.

As part of the four-point plan, UK interest rates have been cut for the first time since 2009, when the bank implemented changes to cushion the UK from the effects of the global financial crisis.

Interest rates have now been slashed from 0.5% to a record low of 0.25%. However, governor Mark Carney also said that there was scope to lower them further if the economy worsens.

Plans were also announced for an additional £60 billion in electronic cash to be injected into the economy to buy government bonds, expanding the quantitative easing (QE) programme to the figure of £435 billion.

Alongside this, an additional £10 billion in electronic cash being created to buy corporate bonds from companies who are “making a material contribution to the UK economy.”

A new £100 billion scheme will also be implemented to force banks to pass on low interest rates to both businesses and households. Under the term funding scheme (TFS), the bank will create new money to provide loans to banks with interest rates close to the base rate of 0.25%.

These measures come as confidence among both businesses and households fell in the aftermath of the June referendum and spending slowed down, hinting towards another recession.

Mr Carney stated that the EU referendum marked a “regime change” and that the UK would need to “redefine its openness to the movements of goods, services, people and capital”

The decision to cut interest rates to 0.25% was approved unanimously by all members of the Monetary Policy Committee (MPC).  

“By acting early and comprehensively, the MPC can reduce uncertainty and bolster confidence, blunt the slowdown and support the necessary adjustments in the UK economy” said Mr Carney.

The chancellor, Phillip Hammond, also welcomed the bank’s announcements:

“The vote to leave the EU has created a period of uncertainty, which would 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 the monetary policy is used to support the economy through this period of adjustment.”

Melanie Luff

About the author

Mel wrote for all titles in the Dynamis stable including, and as well as other global industry publications.


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