Spreadex Market Update
Bank of England cuts rates to 0.25% + injects £60 billion into QE programme, FTSE and pound react accordingly
So, to the nuts and bolts of what the central bank announced this afternoon: a unanimous decision saw the headline interest rate cut from 0.5% to 0.25%, while everyone but Kristin Forbes voted for up to £10 billion in corporate bond purchases. The most controversial step was the £60 billion expansion (to £435 billion) of the current Q3 programme, an expansion opposed by Forbes, Ian McCafferty and Martin Weale. The MPC also unveiled a new £100 billion ‘term funding scheme’ designed to encourage banks to lend.
Carney claimed that there was a ‘clear case’ to act now, with the week’s woeful PMIs joined by fresh forecasts from the BoE that 750,000 people stand to lose their jobs post-Brexit. The Bank also now expects the UK economy to grow by a meagre 0.8% next year (against the 2.3% previously estimated), with inflation set to jump to 0.8% in 2016 and 1.9% in 2017.
The news saw the markets behave just as you would expect; the FTSE surged 1.4%, climbing back above 6700 in the process, while the pound plunged by the same amount against both the dollar and the euro. What is interesting, however, is that this still leaves both instruments within the same trading brackets they have been bouncing around for the last few weeks, reflecting, perhaps, the extent to which today’s action from Carney and co. was expected. It also doesn’t necessarily give either the UK index or sterling any fresh direction for the coming weeks and months, leaving both at the mercy of the next wave of Brexit-impacted data.
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