UK interest rate cut

The Bank of England has taken radical action to prevent the UK from falling into recession, cutting interest rates to 0.25% - the lowest level in the institution’s 322-year history - and pumping billions of pounds of newly created money into the economy.

The Bank cut its forecasts for the growth of the UK economy by the biggest single amount since it starting producing regular forecasts in 1993, slashing its GDP projection next year from 2.2% to 0.8% and predicting a rise in unemployment from 5% to 5.4%.

Not only did the Bank's Monetary Policy Committee cut interest rates by a quarter-percentage point, they also signalled that if the economy performed as the Bank had forecast, they would cut them down again, even to be close to, but a little above, zero.

The cuts formed part of a broad package aimed at preventing the UK economy from suffering a post-Brexit slump.

The Bank said that alongside the rate cut it would reignite its quantitative easing scheme, buying a further £60bn of government debt and taking the total size of the scheme to £435bn.

It would also buy up to £10bn of corporate bonds.

In an effort to ensure the rate cuts would be passed on to customers without banks facing their own funding costs, the Bank also said it would create a £100bn system it called the Term Funding Scheme to provide cheap funding to banks.

The combined package may result in an extra £170bn of money being printed, making it one of the biggest single policy packages ever unveiled by the central bank.

Posted on Aug 03, 2016.

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