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You can find the current article at its original source at https://www.theguardian.com/business/live/2016/aug/04/bank-of-england-interest-rates-stimulus-inflation-report-business-live
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| Bank of England cuts interest rates to ward off Brexit recession – as it happened | |
| (about 1 hour later) | |
| 7.44pm BST | |
| 19:44 | |
| Closing summary: Bank wields its sledgehammer | |
| After more than seven years of static UK interest rates, the first rate hike or cut was always going to be note-worthy. | |
| But the Bank of England has surpassed expectations today with a quadruple-whammy of measures to prevent the UK falling into recession after the Brexit vote. | |
| Chief economist Andy Haldane had hinted last month that the Bank might do something dramatic today, when he said it was better to use “a sledgehammer to crack a nut” rather than a “a miniature rock hammer to tunnel out of prison”. | |
| And now we know what a sledgehammer looks like. Ergo: | |
| Can of worms alert! BoE to decide which companies make "material contribution" to econ. V subjective. No criteria?! pic.twitter.com/v0zdFAmuqF | |
| Governor Mark Carney then delivered a tour de force of a press conference, in which he: | |
| Warned that the decision to leave the European Union was a “regime change”. | |
| By acting early and comprehensively, the MPC can reduceuncertainty, bolster confidence, blunt the slowdown, and supportthe necessary adjustments in the UK economy. | |
| Cut the Bank of England’s growth forecasts. It now expects growth of just 0.8% in 2017, down from 2.3%. | |
| The Bank of England growth downgrades are big. It had expected GDP increases of 2.3% in 2017 and 2018. Now +0.8% and +1.8% respectively | |
| Warned that unemployment would go up over the next two years. That means an extra 250,000 people will lose their jobs. | |
| Hinted that interest rates could be cut further, if the economy continues to deteriorate | |
| Carney then urged banks to pass on the rate cut in full, saying they have “no excuse” for not cutting interest rates. | |
| But as I type, neither Lloyds nor Royal Bank of Scotland have said whether their variable rate mortgages will be cut by 0.25%. | |
| Mortgage lenders delay moves to pass on interest rate cut https://t.co/0kxZRg2MpF | |
| Barclays, Nationwide and Santander have said they’ll pass it on, though. | |
| Governor Carney also warned that savers would receive low interest rates for some time. He blamed global forces pushing down borrowing costs, and argued that the alternative is that more jobs would be lost. | |
| The pound has slumped by 2 cents against the US dollar, and is now trading at $1.311. Shares, though, jumped on the back of the stimulus package - and on hopes that Britain will avoid falling into recession. | |
| Experts are concerned that the rate cut is going to hit pension funds hard, meaning annuities will provide an even lower income when people retire. | |
| And that’s all for tonight. Thanks for reading and commenting. GW | |
| 6.22pm BST | 6.22pm BST |
| 18:22 | 18:22 |
| This is really good: | This is really good: |
| This is the lowest interest rates have been since the Bank of England was founded in 1694 pic.twitter.com/wRW7yNeofv | This is the lowest interest rates have been since the Bank of England was founded in 1694 pic.twitter.com/wRW7yNeofv |
| 6.10pm BST | 6.10pm BST |
| 18:10 | 18:10 |
| Rating agency Fitch has just warned that today’s stimulus package won’t fully protect the UK economy from the Brexit vote. | Rating agency Fitch has just warned that today’s stimulus package won’t fully protect the UK economy from the Brexit vote. |
| It says: | It says: |
| The Bank of England’s (BoE) decision to cut rates, expand its bond buying and set up a new funding scheme for lenders is a proactive policy response to the EU referendum. But it is only likely to cushion, rather than fully offset, the shock to UK growth that June’s Brexit vote will cause, Fitch Ratings says. | The Bank of England’s (BoE) decision to cut rates, expand its bond buying and set up a new funding scheme for lenders is a proactive policy response to the EU referendum. But it is only likely to cushion, rather than fully offset, the shock to UK growth that June’s Brexit vote will cause, Fitch Ratings says. |
| The balance sheet expansion goes beyond our expectations and includes innovative measures to mitigate potential unintended consequences of policy easing. | The balance sheet expansion goes beyond our expectations and includes innovative measures to mitigate potential unintended consequences of policy easing. |
| 5.59pm BST | 5.59pm BST |
| 17:59 | 17:59 |
| There could be more bad news for savers and pension; Shaun Port, CIO of investment site Nutmeg, reckons rates could be cut again: | There could be more bad news for savers and pension; Shaun Port, CIO of investment site Nutmeg, reckons rates could be cut again: |
| Make no mistake, this is a crisis response - especially in view of the zero expected GDP growth forecast for the second half of 2016. | Make no mistake, this is a crisis response - especially in view of the zero expected GDP growth forecast for the second half of 2016. |
| “Today’s rate cut will not be the last if the Bank’s forecasts for growth turn out to be correct. | “Today’s rate cut will not be the last if the Bank’s forecasts for growth turn out to be correct. |
| 5.42pm BST | 5.42pm BST |
| 17:42 | 17:42 |
| Our Money editor, Patrick Collinson, writes that today’s rate cut is a big blow to people saving for a pension: | Our Money editor, Patrick Collinson, writes that today’s rate cut is a big blow to people saving for a pension: |
| Pension savers could be big losers from the Bank of England rate cut, as critics warned of a “hammer blow” to workplace schemes and forecast that pension payouts would fall to record lows. | Pension savers could be big losers from the Bank of England rate cut, as critics warned of a “hammer blow” to workplace schemes and forecast that pension payouts would fall to record lows. |
| Within minutes of the Bank’s decision to cut the base rate to 0.25%, yields on government bonds, otherwise known as gilts, dived to all-time lows. | Within minutes of the Bank’s decision to cut the base rate to 0.25%, yields on government bonds, otherwise known as gilts, dived to all-time lows. |
| Companies that still offer final salary pension schemes will as a result see the cost of maintaining them soar. Hymans Robertson, a pensions consultancy, said the rate cut meant a £70bn increase in the amount company schemes needed to meet their commitments to scheme members, to a total of £2.4trn. | Companies that still offer final salary pension schemes will as a result see the cost of maintaining them soar. Hymans Robertson, a pensions consultancy, said the rate cut meant a £70bn increase in the amount company schemes needed to meet their commitments to scheme members, to a total of £2.4trn. |
| “To put this in context, UK GDP currently stands at £1.8trn. This has pushed the aggregate UK [company scheme] deficit up to £945bn – the worst it has ever been,” it said. | “To put this in context, UK GDP currently stands at £1.8trn. This has pushed the aggregate UK [company scheme] deficit up to £945bn – the worst it has ever been,” it said. |
| UK interest rate cut is a 'hammer blow' for workplace pensions https://t.co/LXkaIw7cXo | UK interest rate cut is a 'hammer blow' for workplace pensions https://t.co/LXkaIw7cXo |
| 5.14pm BST | 5.14pm BST |
| 17:14 | 17:14 |
| European stock markets have just closed for the night, with solid gains across the board. | European stock markets have just closed for the night, with solid gains across the board. |
| The Bank of England’s stimulus package has sparked a wave of buying, which pushed the FTSE 100 index up 105 points, or 1.6%, to 6740. | The Bank of England’s stimulus package has sparked a wave of buying, which pushed the FTSE 100 index up 105 points, or 1.6%, to 6740. |
| The rally is proof that the Bank of England’s stimulus programme is more wide-ranging than the City expected. | The rally is proof that the Bank of England’s stimulus programme is more wide-ranging than the City expected. |
| Tony Cross, market analyst at Trustnet Direct, sums up the situation: | Tony Cross, market analyst at Trustnet Direct, sums up the situation: |
| All those suggestions that the market had already priced in a rate cut from the Bank of England couldn’t have been further from the mark – yes the MPC took some bold action but the fact that the FTSE-100 is finishing the day over 100 points higher shows just how much of an impact the move had. | All those suggestions that the market had already priced in a rate cut from the Bank of England couldn’t have been further from the mark – yes the MPC took some bold action but the fact that the FTSE-100 is finishing the day over 100 points higher shows just how much of an impact the move had. |
| Gains amongst the blue chips are eye-catchingly broad-based with Aviva (+6.7%) still leading the charge off the back of more positive news following the acquisition of Friends Life plus word of a dividend hike, whilst Standard Chartered (+5%) continues to feel the benefit of yesterday’s storming return to profit. | Gains amongst the blue chips are eye-catchingly broad-based with Aviva (+6.7%) still leading the charge off the back of more positive news following the acquisition of Friends Life plus word of a dividend hike, whilst Standard Chartered (+5%) continues to feel the benefit of yesterday’s storming return to profit. |
| 4.48pm BST | 4.48pm BST |
| 16:48 | 16:48 |
| Carney: We're watching the banks | Carney: We're watching the banks |
| Mark Carney is piling pressure on Britain’s commercial banks to pass the rate cut onto consumers, in an interview with Sky News: | Mark Carney is piling pressure on Britain’s commercial banks to pass the rate cut onto consumers, in an interview with Sky News: |
| Mark Carney tells me: “We will be watching” banks to ensure they pass on interest rate cuts | Mark Carney tells me: “We will be watching” banks to ensure they pass on interest rate cuts |
| As we covered earlier, the governor insisted twice during today’s press conference that banks | As we covered earlier, the governor insisted twice during today’s press conference that banks |
| This was the key quote: | This was the key quote: |
| The banks have no excuse, with today’s announcement, not to pass on cut in bank rate and they should write to their customers and make that point. | The banks have no excuse, with today’s announcement, not to pass on cut in bank rate and they should write to their customers and make that point. |
| But while Barclays and Santander have already pledged to cut mortgage rates, RBS and Lloyds are holding back..... | But while Barclays and Santander have already pledged to cut mortgage rates, RBS and Lloyds are holding back..... |
| Updated | Updated |
| at 5.17pm BST | at 5.17pm BST |
| 4.36pm BST | 4.36pm BST |
| 16:36 | 16:36 |
| Economics professor Mariana Mazzucato tweets that properly targeted government spending, not lower interest rates, is the key to improving the economy. | Economics professor Mariana Mazzucato tweets that properly targeted government spending, not lower interest rates, is the key to improving the economy. |
| Surely Carney knows about a liquidity trap? Way to get investment up is bold FISCAL (not monetary) policy creating new opportunities. T May? | Surely Carney knows about a liquidity trap? Way to get investment up is bold FISCAL (not monetary) policy creating new opportunities. T May? |
| 4.07pm BST | 4.07pm BST |
| 16:07 | 16:07 |
| This is why future pensioners, and savers, are in such a bind: | This is why future pensioners, and savers, are in such a bind: |
| Since Brexit (voted for by pensioners) UK 10y yield has plunged from 1.40% to record low 0.65%...decimating pensions pic.twitter.com/CtVUoufWuF | Since Brexit (voted for by pensioners) UK 10y yield has plunged from 1.40% to record low 0.65%...decimating pensions pic.twitter.com/CtVUoufWuF |
| Updated | Updated |
| at 4.19pm BST | at 4.19pm BST |
| 3.59pm BST | 3.59pm BST |
| 15:59 | 15:59 |
| Savers must 'reassess' strategy after rate cut | Savers must 'reassess' strategy after rate cut |
| Holly Mackay, founder and MD of Boring Money, is urging savers to be proactive, rather than simply accept even lower returns on their funds: | Holly Mackay, founder and MD of Boring Money, is urging savers to be proactive, rather than simply accept even lower returns on their funds: |
| Anyone with cash savings has to reassess this strategy as interest moves from poor, to dire. | Anyone with cash savings has to reassess this strategy as interest moves from poor, to dire. |
| Many Brits have an aversion to the stock market but it’s time to ask if we’re just shooting ourselves in the financial foot. Investing online is cheaper, more reputable and easier to do than ever. Mortgage hunters may find some good deals although some providers have already factored an assumed cut over the summer into existing rates.” | Many Brits have an aversion to the stock market but it’s time to ask if we’re just shooting ourselves in the financial foot. Investing online is cheaper, more reputable and easier to do than ever. Mortgage hunters may find some good deals although some providers have already factored an assumed cut over the summer into existing rates.” |
| Cash savers be like... #BoE pic.twitter.com/c5xxioJTPI | Cash savers be like... #BoE pic.twitter.com/c5xxioJTPI |
| Updated | Updated |
| at 4.02pm BST | at 4.02pm BST |
| 3.56pm BST | 3.56pm BST |
| 15:56 | 15:56 |
| How pensions have been hammered by low rates | How pensions have been hammered by low rates |
| Financial services group Hargreaves Lansdown have sent over a chart that shows, in alarming detail, how pension pots have been hit by record low borrowing costs. | Financial services group Hargreaves Lansdown have sent over a chart that shows, in alarming detail, how pension pots have been hit by record low borrowing costs. |
| It shows how the purchasing power of a £100,000 annuity has been steadily eroded, meaning that people who retire today get much less than those who retired in 2003: | It shows how the purchasing power of a £100,000 annuity has been steadily eroded, meaning that people who retire today get much less than those who retired in 2003: |
| Tom McPhail, their head of retirement policy, says it isn’t sustainable. | Tom McPhail, their head of retirement policy, says it isn’t sustainable. |
| “Monetary policy is proving to be pretty unpleasant medicine for pension schemes. It may be supporting asset values and keeping the economy turning but it is also driving down annuity rates and driving up final salary scheme liabilities. | “Monetary policy is proving to be pretty unpleasant medicine for pension schemes. It may be supporting asset values and keeping the economy turning but it is also driving down annuity rates and driving up final salary scheme liabilities. |
| This means employers are having to pump more and more money into final salary schemes and individuals are having to save more and more into their personal pension if they want to buy an annuity. Too much of this medicine is not healthy for anyone’s finances and for final salary schemes in particular, there is a risk that it may actually be killing the patient. The Government is going to have to intervene soon.” | This means employers are having to pump more and more money into final salary schemes and individuals are having to save more and more into their personal pension if they want to buy an annuity. Too much of this medicine is not healthy for anyone’s finances and for final salary schemes in particular, there is a risk that it may actually be killing the patient. The Government is going to have to intervene soon.” |
| 3.46pm BST | 3.46pm BST |
| 15:46 | 15:46 |
| Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers, believes today’s stimulus package is a real game-changer. | Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers, believes today’s stimulus package is a real game-changer. |
| “The announcement today from the Bank of England that interest rates were to be cut was not surprising after much debate and disappointing economic fundamentals in the lead up to and following Brexit. What did surprise was the aggressive package of quantitative easing unveiled, encompassing both government and corporate bonds, and additional term funding for banks. This was along with the indication from Mr Carney in his press conference that negative interest rates are not on the long-term agenda, but we can expect further easing via direct asset purchases. | “The announcement today from the Bank of England that interest rates were to be cut was not surprising after much debate and disappointing economic fundamentals in the lead up to and following Brexit. What did surprise was the aggressive package of quantitative easing unveiled, encompassing both government and corporate bonds, and additional term funding for banks. This was along with the indication from Mr Carney in his press conference that negative interest rates are not on the long-term agenda, but we can expect further easing via direct asset purchases. |
| “This an important change in emphasis and is likely a result of global monetary policy shift we have been witnessing in recent months. | “This an important change in emphasis and is likely a result of global monetary policy shift we have been witnessing in recent months. |