Bank of England cut its interest rate to a new low 0.25 percent and said it would buy government and corporate bonds as part of a broad package to stimulate the U.K. economy in the wake of the Brexit vote. Introducing an aggressive new stimulus package Thursday August 4th in an effort to boost growth and temper unemployment in the aftermath of Britain’s vote to leave the European Union.
The central bank’s interest rate is now 0.25 percent. Most officials expect to lower it again this year if the economy continues to weaken. In addition, the Bank of England (BoE) will pump 70 billion pounds into the economy by purchasing not only government debt but also, for the first time, corporate bonds.
They do expect the British economy to stall through the second half of the year. The country is expected to eke out growth of just 0.8 percent in 2017, down from projections of 2.3 percent, the largest reduction in two decades. The central bank predicted unemployment would rise above 5 percent this year and remain elevated for at least three years.
“We cannot offset the economic impacts of a large structural shock,” BoE Gov. Mark Carney said in a news conference. “However, monetary policy can support the necessary adjustments of the U.K. economy during a period of heightened uncertainty.”
Officials have long warned that ending Britain’s four-year alliance with the Continent carries hefty economic consequences. Financial markets swung dramatically in the days immediately following Brexit’s June decision. It is still to be seen how this effects the worldwide economy negatively. Certainly in the heart of the UK and their vast green country they were to experience first hand the initial effects of Brexits brave decision.
This is still good news so far. The international banking system has been hammered but has stood resilient. London’s FTSE 100 stock index surged Thursday, but on Wall Street, investors appeared to shrug off the announcement.
“Will this have a significant impact on the real economy,” said Simon Wells, Chief U.K. economist at HSBC. “Today’s stimulus package may support confidence, but the BoE still forecasts a significant economic downturn.”