Bank of England cuts rate to 0.25% as it slashes UK growth forecast for 2017 and predicts higher inflation

4th August 2016

The Bank of England has cut interest rates to 0.25% as it aims to stave off an economic downturn caused by Brexit uncertainty. This is the first cut since 2009.

The Bank of England is also buying £60bn of UK government bonds and £10bn of corporate bonds as part of a revived quantitative easing programme.

A new ‘Term Funding Scheme’ will provide funding for banks to support additional lending. This is designed to ensure the reduction in base rate feeds through to the rates faced by households and businesses.

It has also announced the biggest cut to its growth forecasts since it started making them in 1983 cutting growth for next year from 2017 to 0.8% from the previous 2.3%. It believes growth will be 2% this year as previously suggested. The inflation outlook will increase so 2016 is expected to see inflation at 0.8% rather than 0.4, 2017 will see inflation of 1.9% rather than 1.5% and 2.4% in 2018 rather than 2.1%.

The decision to cut interest rates to 0.25% was approved unanimously by the nine members of the Monetary Policy Committee.

The £60bn increase in quantitative easing to £435bn was approved by a vote of 6-3, with MPC members Kristin Forbes, Ian McCafferty and Martin Weale preferring to wait until more concrete data was available.

The Monetary Policy Committee surprised markets last month when it maintained rates at 0.5% until the data became clearer.

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