BoE predicts a dark future for the UK economy

August 5, 2016

Bank of England has cut interest rate by 25 b.p., which sent it to a new historical low of 0,25%. It is the first time in seven years in response to a potential Brexit fallout. The BoE head Mark Carney highlighted a dovish tone in his speech. Stating that the Central Bank will take all necessary actions within its mandate to cope with the economic risks the slowdown will have.

All nine members of the BoE voted for a rate cut to a 0.25%, while the opinions split over the Asset Purchase Program which was still extended to 435 billion pounds from a previous 375 billion. This means that the banks will receive additional help from the BoE, which could potentially boost their lending capabilities. The local bank shares surged ahead of the BoE decision; HSBC gained 2.62% rising from 482.80 to a 517.60 per share, while Barclays rose 1.11% from 146 to 148.30 pound.

“We took these steps because the economic outlook has changed markedly,” Carney said in his speech after the announcement of the monetary policy.  “The indicators have all fallen sharply, in most cases to levels last seen in the financial crisis, and in some cases to all-time lows.”

The governor also stated that the BoE has more room for easing, and the policymakers can extend the stimulus program in the near future lowering the interest rates to a zero. The Monetary Policy Committee’s plan consisted of buying 60 billion pounds of government bonds over the next six months. 10 billion pounds would be spent on corporate bonds in the next 18 months, and 100 billion of the extended lending program to the banks.

The inflation and GDP forecasts were revised as the inflation seem to be reaching its 2% goal in the 4Q of 2017. The MPC noted that the CPI would be held back below target until the 2Q of 2018.

The pound slipped to 1.3133 after hiking to a 1.3330 level in the previous two days, while the gold prices rebounded to $1.367,35 per troy ounce.The DXY extended its rally by 0.21% rising to 95.69, while the Oil futures saw fading activity after climbing above $40. This was caused by the gasoline reserves shrinking in the US EIA as showed on Wednesday. The US Oil gained 0.20% to 40.91 while the UK Oil stalls near a $43 mark. The Japanese Yen trades were nearly unchanged against the US Dollar, with the main struggle developing near a 101 level.

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