Announces other measures to prevent the economy from falling into recession
August 5, 2016: The Bank of England (BoE) announced measures to help the economy come back to normal after the Brexit slowdown. Not only did the Bank cut interest rate, first time in more than seven years, but announced a slew of measures to prevent the UK falling into recession.
Interest rate is now at a record low of 0.25%, a level not seen in the Bank’s 322-year history. The Bank also announced an extra £60bn of newly created money to buy government bonds which, it expects, will force investors into riskier assets. Additionally, a new £100bn scheme has been announced to encourage banks to lend cheaply to UK companies.
The Bank has also pledged to buy £10bn of corporate debt issued by UK companies who make a genuine contribution to the UK economy.
However, economists do not see much in these measures.
James Knightley, senior economist, UK and US, ING, says, “Today’s policy announcements are unlikely to be enough to prevent the UK from entering a technical recession. The steep decline in business surveys and plunge in confidence is unlikely to be reversed anytime soon given the prolonged period of Brexit related uncertainty that the UK faces.”
Indeed, BoE Governor Carney stated that the BoE can’t fully offset this large structural shock.
Bank of England now expects growth of just 0.8% in 2017, down from 2.3% estimated earlier. Governor Mark Caney hinted that interest rate could be cut further if the economy continues to deteriorate. He even urged banks to pass on the rate cut in full stating they ‘have no excuse’ not to cut rates.