Bank of England cuts interest rates to 0.25%

8th August 2016

The Bank of England has announced cuts to UK interest rates from 0.5 per cent to 0.25 per cent, a new record low and the change to rates since the 2009 recession.

Last week, the Monetary Policy Committee (MPC) unanimously voted for a host of new measures, providing much-needed stability to the UK economy following the Brexit vote in June.

The measures included a new Term Funding Scheme aimed at reinforcing the pass-through the of Bank Rate cut; the acquisition of £10bn of UK corporate bonds; and the growth of the asset purchase scheme for UK government bonds totalling £60bn.

Dr Rebecca Harding, chief economist at the British Bankers Association (BBA), said: “The decision to cut interest rates and increase quantitative easing sends a clear signal that the Bank of England is taking a “whatever it takes” approach to stabilising the economy.

“Weak post-Brexit data is creating a perception that the economy is likely to slow and the decision to reduce rates has been made on the basis of a perception of risk.”

Rain Newton-Smith, chief economist, CBI, hopes the latest measures will help “restore confidence in the UK economy”.

“What’s now most important to businesses is that the Government develops a clear plan and timetable for EU negotiations,” said Newton-Smith.

“At the same time, it must press ahead with domestic policy priorities, especially infrastructure decisions, which will allow firms to get on with serving their customers and investing for the future.”

Although the cut to interest rates should provide support to the economy, uncertainty remains around the jobs market and Jo Sellick, managing director of Sellick Partnership, believes further action is necessary in the Autumn Statement.

“The reality is that any lowering of rates typically takes around nine to 12 months to have any sort of tangible impact on the economy and it is too soon to predict exactly what this impact will look like, especially given the current political uncertainty,” said Sellick.

“The Purchasing Manager’s Index (PMI) fell off a cliff in July, the sharpest drop on record, and other economic indicators suggest that there will be a soft recession in the last quarter of this year and into the first quarter of 2017.

“So, what does this mean for the jobs market? The only thing that we know for sure is that the entire economy and public confidence is uncertain, and this will be reflected in attitudes of employers.

“The Bank of England expects the unemployment rate to rise to 5.4 per cent next year and 5.6 per cent in 2018, as well as reducing its growth forecasts for 2017.”

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