Hot Topic – Bank of England

Here’s What Happened Last Week

On Thursday, The Bank of England trimmed its interest rates as expected.

What came as a surprise to the markets was the announcement of a Quantitative Easing (QE) programme

The GBP/USD on Thursday tumbled 1.7% all the way to 1.31014

Against the euro, the pound also fell by 1.4%

Will an expansive stimulus policy work?

This is the first cut to interest rates since 2009 from an already record low of 0.5% to 0.25%. The last time they were this low was in the 1980’s which saw the pound’s value almost halve against the US dollar

Included in the new economic measures the bank is increasing its asset purchasing volume by £60 billion to a total of £435 billion.

Another £10 billion will be used from September onwards for the purchase of top quality corporate bonds in an effort to ease the corporations’ funding expenses.

And £100 billion – will be used by the bank for its “Term Funding Scheme”. This includes lending to banks at a generous rate to make sure that the cut to the base rate is channeled through to consumers and private sector.

So what’s next?

The BOE expects GDP to increase by just 0.1% during Q3 and only a slight increase during the final quarter of this year.

There are no expectations for a technical recession which is defined as a contraction in GDP for six months.

Though there is an expectation of an increase in unemployment and a slowdown of business investment.

The UK economy and the pound will continue to be of interest in the coming months. What do you think is going to happen?

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