Bank of England cuts interest rates to new record low, unveils stimulus measures

Published 04.08.2016 00:00
Updated 04.08.2016 14:35

The Bank of England has cut its key interest rate for the first time since the global financial crisis and offered other stimulus measures as it tries to jumpstart an economy shocked by Britain's vote to leave the European Union.

The central bank cut its key rate to 0.25 percent from a previous record low of 0.5 percent. It is also expanding its bond-buying stimulus program to pump an additional 60 billion pounds ($79 billion) in new money into the economy. And it will buy up to 10 billion pounds in U.K. corporate bonds.

Thursday's decision underscored the bank's concern about an economy that has taken a sharp turn lower since the vote to leave the EU. Early indicators since the June 23 vote suggest that the economy is contracting at its sharpest rate since 2009.

The stimulus measures are a pre-emptive strike to bolster confidence after the first weeks of shock over the vote's outcome. The value of the British pound fell sharply on the news, as lower rates tend to weigh on a currency. It was down 1.1 percent at $1.3173 by early afternoon in London.

Aberdeen Asset Management Chief Economist Lucy O'Carroll says the bank had to act, "more for the sake of its own reputation than the economic benefits."

She says that what will really matter is whether the government will also offer a fiscal boost in the autumn.

"Monetary policy can't do much more on its own," she said.

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