Bank of England Cuts Interest Rate to Historic Low

Politics

The Bank of England has cut it main interest rate from 0.5% to 0.25%, a record low, signaling that rates could go lower if the economy worsens.

“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,” the bank said on Thursday.

Photo credit: The Bank of England

Since Brexit, consumer confidence, services output and purchasing manager sentiment have plummeted, according to multiple surveys. To help improve the economy, the Bank said it would expand its program of government bond purchases, known as quantitative easing. Meanwhile, sterling slumped 1.5 percent against the U.S. dollar, at $1.3136, with US markets opening higher since the news.

Spot gold went up by 0.5% after the BoE news before retracing some of those gains to stand at $1,358.95 a troy ounce.

“The minute they released the number, the price of gold shot up.”said Bernard Dahdah, an analyst at Natixis.

Some have questioned whether the change in the rates and expanding stimulus measures will make a difference.

"The uncertainty created by the Brexit referendum result cannot be addressed by small changes in interest rates or other monetary measures," Andrew Sentance, senior economic adviser at PwC, said in a note after the decision.

"It requires a political response from the government, to make clear the nature of our future relationship with the EU - which will inevitably take time. There are some circumstances when a central bank can do little to offset the shock to the economy and the resulting uncertainty, and that is the case now."

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