BoE Cut Base Rate

Good news for debtors, bad news for savers; the Brexit saga rumbles on. Today the Governor of the Bank of England, Mark Carney, announced a cut in interest rates to 0.25%, its lowest ever rate.

According to the Bank, it is part of a stringent plan to strengthen the UK economy. The measures by the Bank, which included a £60bn purchase of government bonds, are going to be tested in the coming months. Despite the FTSE 100 recovering from an initial Brexit shock, the FTSE 250, more reflective of smaller British businesses, only topped its pre-referendum trading levels over a month after the event. That being said, the action by the Bank is not overly cautious, with the UK economy contracting this week for the first time since 2009, the construction industry slowing and manufacturing output reduced this may only be the start of the dent to the UK’s economy. The National Institute of Economic and Social Research have placed the chance of a recession within the next 18 months at 50%.

The pound fell sharply against the dollar on the news, from 1.33 to below 1.315. Exporters will welcome the news. Carney predicted a 9% depreciation in sterling, bolstering exports and ‘depressing’ imports. The move could bolster manufacturing data for the third quarter, as companies export more and take advantage of lower borrowing costs to invest in new equipment. The move will allow the sector to get back on it’s feet and will provide a solid foundation on which to grow. The sector will be especially important in a Britain outside of the EU.

These fluctuations in the markets are not indicative of the long-term outlook for British industry. It will be essential for the Prime Minister, Theresa May, and the team at the new Department of International Trade to waste no time initiating trade discussions with the world.

The Channel Group believes that the measures taken today are positive steps the recovery process of the British economy. Pensioners and savers may lose out, but those with mortgages will benefit from this decrease, as will those trying to get on the property ladder.  

The Channel Group

The Channel Group is an independent think tank established to champion free trade.

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