August Revolution for the Bank of England. Having absorbed the shock of the vote in favor of Brexit on 23 June, the central institute of London finally adopts the countermeasures to protect the real economy and financial markets.
THE CUT IN RATES
First, the Bank of England announced a cut in its discount rate to an all-time low of 0,25%, from 0,50%. For the BoE, this is the first reduction in the cost of money since 2009. The decision – expected by the markets – was unanimously taken by the board (nine out of nine directors).
IMPROVEMENT OF QUANTITATIVE EASING
The central bank also voted to expand its government bond purchase programme, expanding it by £60bn to £435bn. Not only that: the BoE has also launched two new plans, one to purchase £10bn of corporate bonds and another, potentially worth £100bn, to ensure banks don't cut back on lending after cuts interest rates at historic lows.
GDP ESTIMATIONS COLLAPSE
These expansive measures by the central institution come after the macro data which testified to a slowdown in the economy caused by the outcome of the Brexit referendum. In recent days, the PMI indices have shown a contraction in manufacturing activity, which fell in July to the lowest levels since 2009.
Not surprisingly, the BoE has also severely cut forecasts for British GDP for the next few years: growth estimates for 2017 drop from 2,3% to 0,8% and those for 2018 from 2,3% to 1,8 .2016%. However, the Bank of England maintained its estimate for 2 at XNUMX%, thanks to a larger-than-expected expansion in the first half of the year.
The Bank of England also forecasts a decline in business investments: -3,75% in 2016 and -2% in 2017, against growth forecasts of 2,5% and 7,25% respectively formulated last May alone.
Estimates on real estate investments are also worsening: an increase of 2016% is forecast for 1,25, against the previous estimate of +4%, while in 2017 the decline should reach 4,75% (the May forecast was a growth of 5,25%).
Lastly, according to the Bank of England, inflation will be kept high by the weakening of the pound: the forecast is +2,1% in 2017 and +2,4% in 2018. The measures prepared, however, also serve to ensure that inflation does not fall below the medium-term target.
