The Bank of England was true to expectations with the Monetary Policy Committee voting 9-0 in favour of a 25 base point rate cut reducing the interest rate to 0.25%. This is the first interest rate movement in the UK since 2009. The committee also introduced much stronger measures to accompany the cut with the quantitative easing government bond purchases increasing by £60bn to £435bn overall.

Most significantly the bank re-introduced corporate bond buying to the value of £10bn. This will see the bank invest in companies that make a material contribution to the UK. Analysts have suggested that there are around 150 companies that meet the criteria including the likes of Vodafone and Heathrow Airport.

Sterling drops after decision

The GBP/EUR rate fell to a 3 weeks low of the back of the news, dropping 2 cents in the aftermath of the decision. On Wednesday the rates had started to gain which created speculation as to whether there would actually be a rate cut, some analysts believed it may have been too early to judge the post Brexit economy.

The cuts may not be over for 2016

The Quarterly Inflation Report that was released at the same time as the decision today has suggested that the Bank of England may cut interest rates once again this year. The release mentions that if the economy performs as badly as forecasts expect then a cut to just above zero could be on the cards. In Mark Carney’s statement after the report he made it clear that he would not introduce negative interest rates, which may have installed some confidence as to where the bottom may be.

During very volatile periods it is important to be in touch with your broker to ensure you’re in a position to trade on any movements in your favour.

For more information on how the BoEs decision yesterday could impact your currency requirements, call our trading floor on 01494 725 353.


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