Bank of England cuts interest rates to 0.25%

The Bank of England has announced a wide package of measures – including cutting UK interest for the first time in seven years – aimed at shoring up the economy in the wake of the Brexit vote.

The Bank cut official interest rates to a new record low of 0.25% from 0.5% and signalled they would be reduced further in coming months. It slashed its forecasts for UK economic growth by an unprecedented amount and implied the UK would have suffered a downturn without these new measures.

Warning that the decision to leave the EU in June’s referendum would stoke inflation and push up unemployment, the Bank’s monetary policy committee unveiled a four-point plan to mitigate the impact.

The package consists of a cut in official interest rates to 0.25%, plans to pump an additional £60bn in electronic cash into the economy to buy government bonds, creating £10bn in electronic cash to buy corporate bonds from firms “making a material contribution to the UK economy”, and introducing a new scheme to provide as much as £100bn of new funding to banks to help them pass on the base rate cut to the real economy.

The Bank’s package of measures follows early economic indicators that confidence among businesses and households slumped in the wake of the June referendum and that a slowdown in spending threatens to tip the UK into recession.

Business surveys this week suggested all parts of the economy were affected by a drop in demand following the vote to leave the EU.

The Bank’s intervention to shore up confidence with this new package was welcomed by the chancellor, Philip Hammond.

He said in a statement: “The vote to leave the EU has created a period of uncertainty, which will be followed by a period of adjustment as the shape of our new relationship with the EU becomes clear and the economy responds to that.

“It’s right that monetary policy is used to support the economy through this period of adjustment.”

Hammond said the government and the Bank had the tools needed to support the economy.

Echoing that, the Bank’s monetary policy committee (MPC), chaired by the Bank’s governor, Mark Carney, also sought to reassure financial markets that there would be more easing to come this year.

Minutes from the MPC’s meeting said that if economic news proved consistent with the Bank’s latest forecasts then “a majority of members expected to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of the year.”

“The MPC currently judged this bound to be close to, but a little above, zero,” the minutes added.

The Bank predicted there would be virtually no growth in the economy in the second half of this year and cut the outlook for the coming two years in its quarterly inflation report published alongside the rate decision.