The Bank of England’s Monetary Policy Committee (MPC) has voted to cut the Bank Rate to 0.25%.
It is the first change to the Bank Rate since March 2009. The MPC voted unanimously to reduce the Bank Rate.
The Bank has also introduced a package of measures to stimulate the economy following the Brexit vote.
It is introducing a Term Funding Scheme, purchasing up to £10 billion of UK corporate bonds and an expansion of the asset purchase scheme for UK government bonds (‘quantitative easing’) of £60 billion, taking the total stock of these asset purchases to £435 billion.
It said that as interest rates are close to zero, it is likely to be difficult for some banks and building societies to reduce deposit rates much further, which in turn might limit their ability to cut their lending rates. In order to mitigate this, the MPC is launching a Term Funding Scheme (TFS) that will provide funding for banks at interest rates close to Bank Rate.
The Bank of England said: “This monetary policy action should help reinforce the transmission of the reduction in Bank Rate to the real economy to ensure that households and firms benefit from the MPC’s actions. In addition, the TFS provides participants with a cost effective source of funding to support additional lending to the real economy, providing insurance against the risk that conditions tighten in bank funding markets.
“The expansion of the Bank of England’s asset purchase programme for UK 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. It is also likely to trigger portfolio rebalancing into riskier assets by current holders of government bonds, further enhancing the supply of credit to the broader economy.”
Steve Griffiths, head of sales and distribution at Kensington, said: “With uncertainty still making waves in the markets, the Bank of England has made the decision to lower interest rates to a new historic low this month. Amid this ambiguity about what Brexit means for the economy, brokers must use every opportunity they can to make sure their clients are getting the advice they need.
“That means consulting their back books and speaking with not just customers who circumstances fit more simple mortgage applications, but also those individuals whose working backgrounds mean they require more specialist advice. Ultimately, it’s this group that will need expert advice the most, if they are to secure a good deal in these uncertain times.”