U.K. central bank unveils stimulus to counter Brexit jitters
LONDON - 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.
The bank suggested that more stimulus action was possible if the incoming economic data proves broadly consistent with the new forecasts the Bank of England compiled Thursday.
"A majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the (committee's) forthcoming meetings during the course of the year," policymakers said in a statement. It estimated that lower bound to be "close to, but a little above, zero."
The bank also slashed its growth forecasts from next year onwards, underscoring the contraction underway. It predicted the economy would grow only 0.8 percent next year, compared with the 2.3 percent it had previously predicted. The cut its forecast for 2018 to 1.8 percent from 2.3 percent.
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.