BANK of England governor Mark Carney said Britain’s economy had received the shot in the arm needed in the face of the “new reality” of Brexit as interest rates were slashed for the first time since 2009.
Carney assured the Bank had delivered a “timely, coherent and comprehensive” package of measures and said the rate cut would be felt “immediately in the economy”.
Policymakers on the Monetary Policy Committee (MPC) voted unanimously to cut rates to a new historic low of 0.25 per cent from 0.5 per cent – the first cut since March 2009, when the Bank reduced rates at the height of the financial crisis.
It also unveiled a package of measures worth up to £170 billion to boost a sharply slowing economy after the EU referendum vote, with the Bank revealing its biggest growth downgrade since the MPC was created nearly 20 years ago.
The Bank believes the measures will see the UK narrowly avoid recession, but it warned there may be a “material slowdown”, higher unemployment and falling house prices over the next year.
Carney said the changes needed in the economy following the Brexit vote “may prove difficult and many will take time”.
But he insisted: “The UK can handle it.”
He said: “We have, in the actions we have taken today, improved the economic outcomes for this country.
“There will be less unemployment, more activity and a greater prospect of a successful adjustment to the new reality that the UK faces.”
The Bank’s economy-boosting action will see it fire up the printing presses once more to expand its £375bn quantitative easing (QE) programme by £60bn to £435bn – the first QE increase since 2012.
It is also buying £10bn of corporate debt and announced a new scheme worth up to £100bn to encourage banks to lend to households and businesses.
And more rate reductions are on the cards, with the minutes of the MPC meeting revealing most members expect to cut rates to a “little above zero” by the end of the year if growth slows as expected.
But Carney appeared to rule out the prospect of negative interest rates, saying he was “not a fan”.
He admitted savers would continue to suffer low returns after the rate cut, but assured they would benefit from a “better economic outcome” from rock bottom rates.
Borrowers should see immediate benefits, though, and Mr Carney said banks had “no excuse not to pass on this cut”, thanks to the Bank’s package of measures.
Chancellor Philip Hammond welcomed the MPC’s action and in a letter to Carney he added was “prepared to take any necessary steps to support the economy and promote confidence”.
He added: “The governor and I have the tools we need to support the economy as we begin this new chapter and address the challenges ahead.”
The FTSE 100 rose almost 100 points to 6,731 in afternoon trading following the announcement, gaining 1.47 per cent.
Sterling went in the opposite direction, plummeting 1.18 per cent, or 1.5 cents, against the US dollar to stand at 1.31.
Against the euro the pound also dropped, by 1.04 per cent to 1.18. ends
Asked whether he was concerned that the benefits of a further round of QE would be felt by the haves rather than the have-nots, Mr Hammond told Sky News: “We are determined to build an economy that works for everyone.
“Right now, we are trying to protect jobs and economic growth and the measures that have been taken today are designed to ensure that any increase in unemployment as a result of the economic slowdown is kept to the absolute minimum possible, and to support economic growth through the next 18 months to two years as we face this period of uncertainty as we negotiate our exit from the EU.”
Hammond acknowledged “of course there is a concern around the impact on pension funds” of the Bank’s decision to extend asset purchasing.
But he said: “The governor made very clear that the Bank of England is aware of this and has taken that concern very much into account in designing this package of measures.”
The Chancellor said he would study data over the summer “to see what’s actually happening in the real economy in response to what was a very large package that the governor has announced”.
Hammond said: “The governor has made clear that he still has monetary policy tools available to him to provide further support to the economy if necessary, and as we approach the Autumn Statement of course we will consider whether there is any need for a fiscal response.”
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