The cut was part of a package of measures, announced on August 4, that also included a pledge to purchase of up to £10 billion of UK corporate bonds and the expansion of the asset purchase scheme for UK government bonds of £60 billion.
Here’s a round up of City reaction to the news…
Senior economist, Schroders
In the MPC’s meeting minutes, the committee stated that a majority of members are minded to cut interest rates further to close to, but above zero if the incoming data proves to be broadly consistent with their latest forecasts. Given our forecast is very similar to the BoE’s, we are today changing our forecast to include a further cut in interest rates to 0.1% for November.
Chief economist and partner at hedge fund Toscafund
There was no need for haste. The MPC meets again on 15/9 by which time it would have had tangible July data for the labour market, trade, consumer, production and construction. Drawing upon PMIs is too hasty and proves how rubbish Carney is. The idea we need a rate cut and QE and corporate bonds and….is absurd.
Co-head of global ECM at Bank of America Merrill Lynch
If the interest rate cuts translate into weaker sterling, it may tempt some investors into buying into IPOs but it may also discourage some owners from IPO’ing in the first place. It really can cut both ways.
Global FX strategist at JP Morgan
In our view this package of rate cuts, asset purchases, and forward guidance represents a more assertive response to Brexit than the FX market was anticipating and the subsequent knee-jerk drop in the British pound looks both appropriate and proportionate.
Managing director, head of defined benefit pensions, Redington
Many pension schemes undertaking actuarial valuations at the June or September quarter ends are likely to show stressed positions – with higher deficits despite reasonable asset growth. Schemes are likely to need increased sponsor contributions, or will seek higher asset returns, or push out recovery plans. A combination of all three could even be required.
Head of sterling portfolios at Pimco
…the MPC looks to have used all of the tools market participants had been looking at. By extending the QE programme over the next 6 months, and the corporate bond buying programme over the next 18 months, the MPC has indicated that it expects to be in easing mode for a good while to come. This has triggered new lows on UK gilt yields and pushed sterling down again this morning. These moves are justified by what is certainly a comprehensive programme, and will support these levels going forward.
Portfolio manager, Old Mutual Global Investors
With limited ammunition the central bank clearly felt that it was better to be aggressive and fast in loosening policy, along the lines of their chief economist Andrew Haldane’s speech calling for a ‘sledgehammer’ approach. Governor Mark Carney may also have felt his credibility was on the line after his 30 June speech strongly hinted at further easing over the summer.
Director of external affairs, Pensions and Lifetime Savings Association
Given the current economic conditions we are calling on the Pensions Regulator to use its existing powers to take a proportionate and flexible approach to scheme funding in these uncertain times. It should give particular consideration to schemes going through a valuation cycle at the moment.
Dr Rebecca Harding
BBA chief economist
The decision to cut interest rates and increase quantitative easing sends a clear signal that the Bank of England is taking a ‘whatever it takes’ approach to stabilising the economy. Weak post-Brexit data is creating a perception that the economy is likely to slow and the decision to reduce rates has been made on the basis of a perception of risk.
Senior consultant at Punter Southall
It is an important reminder that rates can still fall further and the Bank of England could end up joining the many other central banks with interest rates which are zero or negative. Pension schemes will want to review the level of interest rate protection they have in place and how much of this risk they are comfortable retaining.
Global FX and commodity strategist at ETF Securities
I believe stagflation remains a distinct possibility as the weak GBP will boost inflation. Persistent imported inflation threatens the credibility of the Bank of England after cutting rates to support the domestic economy. The Bank of England will be in a difficult position if inflation expectations become unanchored, and may have to reverse course and raise rates in 2017.
Deputy CIO at Canaccord Genuity Wealth Management
The Bank of England’s moves today are the last throw of the dice as far as monetary policy is concerned… effects will again be most felt by financial markets. Sterling trend remains down, gilts look set to stay supported in the short term and there is some fresh impetus behind UK equities.
Gonçalo de Vasconcelos
CEO and co-founder of SyndicateRoom
Britain is a nation of savers and investors and for individual investors, today’s decision may be seen as another blow to expectations for household financial planning. It makes it even clearer that alternative investments offer the opportunity for long-term financial gains.
Currency analyst at UKForex
The action taken by the MPC indicates that they see a recession likely in the second half of the year, following the UK’s decision to leave the EU. With many in the markets expecting no further QE, the injection of extra liquidity demonstrates how seriously the MPC views the potential economic damage done by the Brexit vote. All eyes are now on Mark Carney’s press conference, watching out for clues on future easing measures.