This is the first reduction in the rate of the BoE since March 2009 when the central bank was looking to exit the UK of a recession in which he had dived in full international financial crisis.
The BoE also decided to inject more liquidity into the economy, increasing by 60 billion pounds (71 billion euros) its purchase program of government bonds, and also buying up to 10 billion pounds of corporate bonds. It finally launched a new system to provide cheap funds to banks.
By relaxing its monetary policy, the central bank wants to boost an economy that is causing concern for the British vote in favor of Brexit the June 23 referendum. The BoE she even provided a “ growth significantly lower ” Now that the country is moving towards the EU exit.
feverish in recent years by a steep rise in prices, the real estate market gives for signs of tensions, raising fears to some experts the bursting of a bubble.
The fall of the pound since the vote has increased the cost of foreign travel for the British and risk of increased import prices and therefore products sold in the country – Chain ‘Next clothing, for example, warned Wednesday that it may have to pay up to 5% more than its clothing imports.
The morale of consumers and industry also faltered, although no significant impact is still seen on the side of consumption. Primordial UK, the services sector contracted at an unprecedented pace in more than seven years, warned Wednesday firm Markit, which, like other experts, suggests a risk of recession.
– Under pressure to act –
In this difficult context, the central bank is therefore seeking further reassurance. Its governor, Mark Carney, had been omnipresent in the days following the referendum on political earthquake, appearing several times on television to ensure that the Institute would be necessary to stabilize the financial system if needed.
This time it is the lever of monetary policy that the BoE seeks to maintain confidence. In mid-July she had kept intact his orientation at the first meeting of its Monetary Policy Committee (MPC) since the referendum.
But the visible deterioration in the indicators since this time has led to action the nine members of the CPM, who voted unanimously for the rate cut.
“ I prefer to take the risk to crush a nut with a sledgehammer rather than digging a tunnel with a miniature ax “, had also warned the chief economist BoE Andrew Haldane, responding in advance to critics doubting the effectiveness of such action in a context of already low rates.
The decision of the BoE could indeed perverse effect of further limiting bank margins and income savers: Royal Bank of Scotland was even recently warned its business customers it might have to make them pay for their deposit accounts.
But the central bank was under pressure to act, particularly as the new finance minister, Philip Hammond, for its part excluded any government initiative to boost growth until the fall.
The book, which had rebounded slightly against the euro and the dollar before the announcement, is highly distributed downward once the published decision.