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Bank of England cuts interest rates to 0.25%

schedule 23rd January 2017 by Virtual College in Virtual College Last updated on 24th April 2018

Pound notes and euro notes

The Bank of England has cut its base rate to 0.25 per cent following the decision to leave the EU.

The Bank of England’s Monetary Policy Committee (MPC) has cut interest rates to a record low 0.25 per cent in an attempt to boost growth in the UK. It is the first cut since 2009.

The interest rate cut was prompted by the country’s decision to leave the European Union (EU).

Speaking at a news conference when the announcement was made, governor of the Bank of England, Mark Carney, said that monetary policy has the ability to “support the necessary adjustments of the UK economy during a period of heightened uncertainty”.

Other measures to provide this economic support were also announced, including the purchase of up to £10 billion of UK corporate bonds and an expansion of the asset purchase scheme for UK government bonds of £60 billion, which then takes the total stock of these asset purchases to £435 billion.

The cut in interest rates is intended to lower borrowing costs for households and businesses, leading to improved opportunities.

The Bank is also introducing a new Term Funding Scheme to reinforce the pass-through of the cut in Bank Rate. This has been designed to provide funding for banks at interest rates close to the Bank Rate in response to the fact that it will be difficult for some banks to cut deposit rates any further, which could then constrict their ability to reduce lending rates.

Such a measure has been implemented in order to force banks to pass the savings on the lower interest rate onto customers.

Mr Carney said: “We took these steps because the economic outlook has changed markedly, with the largest revision to our GDP forecast since the MPC was formed almost two decades ago.”

He added: “The degree and composition of stimulus is largely determined by the effects of the vote to leave the EU on demand, supply and the exchange rate.”


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Author: Virtual College

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