LONDON, (Pakistan Point News - APP - 4th August, 2016) - The Bank of England on Thursday cut interest rates to a record low 0.25 percent in a vast stimulus package aimed at preventing recession after Brexit. Policymakers voted unanimously to reduce its key rate by a quarter-point from 0.50 percent, cutting borrowing costs for the first time in more than seven years, the bank said in a statement after its latest meeting. The BoE also backed a œ170-billion ($227-billion, 200-billion-euro) stimulus package after slashing its economic forecasts for 2017 and 2018, in the wake of Britain's shock EU exit referendum.
The bank's nine-member Monetary Policy Committee (MPC) also agreed to re-activate its quantitative easing (QE) bond-buying scheme, lifting it by œ60 billion to a total of œ435 billion in the first QE increase since 2012. "At its meeting ... the MPC voted for a package of measures designed to provide additional support to growth and to achieve a sustainable return of inflation to the (2.0-percent) target," the bank said in minutes from the gathering.
The package will see the BoE buy #10 billion of corporate debt, while it also unveiled a new scheme worth up to #100 billion to encourage banks to lend to households and businesses, taking the total stimulus amount to œ170 billion. Thursday's news sent London's FTSE 100 index almost 1.50 percent higher in early afternoon deals, while sterling bounced briefly against the euro and Dollar before sliding lower. "Recent surveys of business activity, confidence and optimism suggest that the United Kingdom is likely to see little growth in GDP in the second half of this year," the bank warned.
The BoE meanwhile maintained its 2.0-percent economic growth forecast for 2016. However, it also slashed the growth outlook to 0.8 percent in 2017 and 1.8 percent in 2018. That compared with prior predictions of 2.3 percent for both 2017 and 2018. "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," it added. The BoE had already flagged last month that it might deliver an interest rate cut in August in response to the Brexit referendum. British borrowing costs now stand at their lowest level in the central bank's 322-year history.