Interest rate cut: reaction

The Bank of England has cut interest rates for the first time in 7 years.

Reacting to the UK’s decision to leave the EU, the Bank announced a range of measures:

  • Official interest rates have been cut to 0.25%
  • Extending the quantitative easing programme by a further £60 billion (bringing a total of £435 billion)
  • £10 billion in corporate bonds purchases
  • A new term funding scheme that will see the Bank create money to provide loans to banks.

The 2017 growth forecast for the UK was also downgraded from 2.3% to 0.8%.

Bank of England governor Mark Carney used his speech after the announcement to make it clear that he thought there was “no excuse” for banks not to pass on lower borrowing costs to customers. They will be charged penalties for failing to do so.

Major business and industry bodies reacted to the Bank’s decision:

Dr Rebecca Harding, chief economist at the British Banker’s Association , said the measures sent a “clear signal” that the Bank was taking a “whatever it takes” approach to 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.”

Darren Bustin, head of derivatives at Royal London Asset Management, said:

“One casualty of today will be pension schemes whose deficit is likely to get worse rather than better. It will also be a wait and see in regard to banks and their profitability.”

Yvonne Braun, director of policy at the Association of British Insurers , said:

“Today’s decision will be disappointing news for customers looking to buy an annuity.[…] This further drop of the interest rate to unprecedented low levels and the additional injection of quantitative easing are likely to put downward pressure on annuity rates.”

Rain Newton-smith , chief economist at the Confederation of British Industry, said the Bank had “rightly prioritised growth” in response to the economic uncertainty following the EU referendum result:

“With interest rates once again at record lows, expansionary fiscal policy can do more to shore up business and consumer confidence, and put the UK on a stronger growth path for the future.”

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