UK interest rates have been cut for the first time in seven years as part of a wide package of Bank of England measures to shore up the economy in the wake of the Brexit vote.
The Bank cut official interest rates to a new record low of 0.25% from 0.5% and signalled they would be reduced further in coming months. It slashed its forecasts for UK economic growth by an unprecedented amount and implied the UK would have suffered a downturn without these new measures.
Warning that the decision to leave the EU in June’s referendum would stoke inflation and push up unemployment, the Bank’s monetary policy committee unveiled a four-point plan to mitigate the impact.
The package consists of:
• A cut in official interest rates to 0.25%. The Bank last cut interest rates in March 2009 in a bid to cushion the UK economy from the global financial crisis
• Plans to pump an additional £60bn in electronic cash into the economy to buy government bonds, extending the existing quantitative easing (QE) programme to £435bn in total
• Another £10bn in electronic cash will be created to buy corporate bonds from firms “making a material contribution to the UK economy”
• A new scheme to provide as much as £100bn of new funding to banks to help them pass on the base rate cut to the real economy. Under this new “term funding scheme” (TFS) the Bank will create new money to provide loans to banks at interest rates close to the base rate of 0.25%
The Bank’s package of measures follows early economic indicators that confidence among businesses and households slumped in the wake of the June referendum and that a slowdown in spending threatens to tip the UK into recession.
