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Big news – Bank of England cuts rates

The Bank of England has cut interest rates for the first time since 2009

So there we have it. The Bank of England has followed up on Carney’s speech when he told markets “monetary policy easing” would be required this summer if UK voted to leave the EU by cutting interest rates to 0.25%. Which is the first move the BOE have made since it cut them in March 2009.

Members of the BOE Monetary Policy Committee voted unanimously to reduce rates after their decision for a rate cut, in a widely anticipated move, following a decision to leave rates on hold in last month’s meeting.

The Bank said the majority of MPC members expected interest rates to be reduced to zero by the end of the year.

An extra £70 Billion!

In addition to the rate cut, Bank of England governor Mark Carney has announced an extra £70billion in quantitative easing, supported by a six to three vote by the MPC members.

This £70 billion will include £60 billion in government bond purchases which will bring the total QE asset purchasing package to a whopping £435 billion with the remaining £10 billion for an additional corporate bond buying programme which will include sterling-denominated investment grade issues by companies that make a “material contribution” to the UK economy.

It appears that interest rates will continue their trend towards zero, making it harder for some banks to reduce deposit rates much further. The Bank of England has also launched a Term Funding Scheme to provide funding for banks at an interest rates close to the bank rate.

Bank of England base rates were cut from 1% to 0.5% back in March 2009, so in effect have been at 0.5% for over 7 years now.

The Bank of England has downgraded its growth outlook for the UK by the biggest amount in 20 years as the outlook or the UK economy has weakened markedly. GDP doesn’t seem to be growing, with growth projected to slow down to 0.1% in quarter 3 of 2016.

Growth expectations for 2016 as a whole remain at 2%, but growth forecasts for 2017 have been cut from 2.3% to 0.8%, and the 2018 forecast has been downgraded from 2.3% to 1.8%.

By reducing interest rates now, The Bank of England are hoping to narrowly avoid an outright recession but are forecasting a rise in unemployment, a fall in house prices and a pick-up in inflation.

How will this affect us living in Cornwall? Only time will tell.

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Last updated: 11th August 2016

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