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  2. ECONOMY
August 04, 2016 01:00 AM

Bank of England cuts interest rates to 0.25%

Rob Kozlowski
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    Simon Dawson/Bloomberg
    Bank of England

    The Bank of England’s monetary policy committee voted on Wednesday to drop U.K. interest rates by 25 basis points to 0.25%, as a result of the U.K.’s decision to exit the European Union.

    The committee, which sets monetary policy to meet the bank’s 2% inflation target in a way that sustains growth and employment in the U.K., voted 9-0 to drop the rate from 0.5%. The committee had voted in July to retain the 0.5% interest rate.

    In the meeting summary posted on the bank’s website, the committee said, “Following the United Kingdom’s vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly. The fall in sterling is likely to push up on (consumer price index) inflation in the near term, hastening its return to the 2% target and probably causing it to rise above the target in the latter part of the MPC’s forecast period, before the exchange rate effect dissipates thereafter.”

    The committee also voted to purchase up to £10 billion ($13.1 billion) of U.K. corporate bonds and to expand the asset purchase scheme for U.K. government bonds by £60 billion, bringing the total of those asset purchases to £435 billion.

    “The expansion of the Bank of England’s asset purchase (program) for U.K. government bonds will impart monetary stimulus by lowering the yields on securities that are used to determine the cost of borrowing for households and businesses,” the committee said.

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