The main story dominating the market yesterday was the Bank of England’s decision to cut interest rate by 25bp, to a new record low of 0.25%, and the launch of a massive stimulus package designed to save the UK economy from recession. The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to slash interest rates to an all-time low; they also hinted that it might cut rates “close to but a little above zero” and could unleash more Quantitative Easing if needed.

With a 60 billion government bond buying program and a new initiative to buy 10 billion pounds of corporate bonds, the Bank of England hope to support the necessary adjustments in the UK economy following Brexit. Mark Carney and the Bank of England think that the outlook for growth has “weakened materially” and they anticipate that the pain will be felt in 2017 as their Quarterly Report shows 2017 forecast slashed from 2.3% to 0.8%, the largest downgrade to its growth forecast to date.

Inflation is forecasted to increase thanks to the weakness of the pound, with the Central Bank now anticipating to hit their 2% target in Q4 of 2017 as opposed to Q2 of 2018 as previously anticipated. Unemployment rate is also expected to rise to 5.4% in Q3 2016 compared to a previous forecast of 4.9%.

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Article by Davide Ugolini, Senior Corporate Dealer
* Information courtesy of Currencies Direct
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