Bank of England slashes interest rates as first signs of Brexit pain emerge

The pound tumbled against the dirham after the Bank of England cut interest rates for the first time since March 2009.

Governor of the Bank of England Mark Carney hosts his quarterly Inflation Report press conference at the Bank of England in central London, on August 4, 2016. The Bank of England on Thursday cut interShow more

The pound tumbled against the dirham on Thursday after the Bank of England cut interest rates for the first time since March 2009.

The move was part of a suite of stimulus measures to boost the economy after the United Kingdom’s vote to leave the European Union.

At 6pm UAE time on Thursday, sterling had dropped to Dh4.82 from a high of Dh5.46 on June 23, the day before the shock Brexit decision became clear. It was at US$1.31 and €1.17, respectively, having fallen at least 1 per cent against all of its 16 major peers.

The BoE’s nine-member Monetary Policy Committee (MPC) voted unanimously to lower the benchmark rate by 25 basis points to a record-low 0.25 per cent. Officials led by the governor Mark Carney increased the central bank’s asset-purchase target for the first time in four years, raising the target by £60 billion (Dh289.77bn) to £435bn. UK government bonds jumped, pushing the 10-year gilt yield to a record low.

The MPC said it would buy £60bn of gilts over six months and as much as £10bn of corporate bonds in the next 18 months.

“The BoE clearly is willing to provide an array of stimulus policies because it thinks that the UK economy is going to face substantial headwinds from Brexit,” said Peter Frank at Banco Bilbao Vizcaya Argentaria in London.

“I think the BoE and the government is keen to see a much weaker pound.”

The pound dropped to a 31-year low of $1.2798 on July 6.

Sterling’s fall will be a boost for UK expatriates in this country earning in dirhams, but that may be tempered by sliding house values, especially in central London.

The rate cut has forced Britain’s biggest high-street lenders to review the rates on hundreds of savings and mortgage products, many of which were already at record lows.

HSBC, Lloyds Banking Group, Barclays, Royal Bank of Scotland and Santander UK, the British arm of Banco Santander, all said they would evaluate deposit and lending rates offered and inform affected customers of any changes in due course.

“We’re living through a time of considerable uncertainty,” the BoE governor Mark Carney said on Thursday.

Stock markets, however, reacted positively to the rate cut. Having earlier hit a three-week low, the FTSE 100 turned positive, jumping 1.5 per cent on the day by late afternoon UAE time.

The mid-cap FTSE 250 index, dominated by domestically focused companies, extended gains to trade 1.4 per cent higher.

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