Brexit Bulletin: Bank of England Cuts Rates and Slashes Growth Forecasts
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The Bank of England delivered a fresh salvo of monetary stimulus for the Brexit-hit U.K. economy.
Governor Mark Carney and his colleagues halved their key interest rate to a record low of 0.25 percent, the first reduction in more than seven years. They also restarted the quantitative easing printing presses by saying they would buy 60 billion pounds ($79 billion) of government bonds over six months and as much as 10 billion pounds of corporate bonds in the next 18 months.
The policymakers acted as they slashed their growth forecasts by the most ever. A majority said they expect to support a further rate reduction later in the year to a little above zero.
Business leaders urged Prime Minister Theresa May's government to deliver a “bumper” fiscal stimulus, saying the Bank of England can do little to revive confidence on its own. The Institute of Directors said its latest survey found increasing pessimism about the economy.
May sought to reassure small and medium-sized companies in the wake of Brexit, describing businesses that employ fewer than 250 workers as the “backbone” of the economy. She asked for their their input on the negotiations and how the government can help them access opportunities in new markets.
According to an Ipsos survey, 58 percent of adults in the European Union think Brexit was the wrong decision for the bloc.
Among bigger companies reporting earnings today, Germany’s Siemens said it saw no impact from the Brexit vote on its U.K. investments but urged clarity from British politicians.
An emerging pawn in the post-Brexit battle for London’s financial-services industry is the obscure back-office function of clearing, intended to bring more stability to trading in financial markets.
Quitting the EU could endanger thousands of jobs at the clearing houses and their member banks if France and Germany carry through their threat to repatriate euro clearing, Will Hadfield and John Detrixhe of Bloomberg explain.
Separately, London Stock Exchange warned today that Brexit may affect clearing volumes and fees.
No Change for the Elite
Europe’s political elite may be failing to heed the lessons of Brexit. Six weeks after voters rebuked the ruling class, in part because they felt disenfranchised from the economy, the establishment has reacted by carrying on as before.
Former Bank of England Governor Mervyn King has joined Citigroup, while former European Commission President Jose Manuel Barroso began advising Goldman Sachs. Meanwhile, departed U.K. Prime Minister David Cameron is facing criticism for nominating numerous aides for honors.
“Anything that doesn’t show the government or public institutions in a good light merely confirms some of the attitudes that probably contributed to the Brexit vote,” Chris Roebuck of Cass Business School told Bloomberg’s Thomas Seal.
On the Markets
The pound and gilt yields fell while the FTSE-100 Index of stocks rose after the BOE acted.
Londoners may find it harder to catch their breath if Brexit ends up weakening air-quality standards, according to S&P Global Inc. Inside the EU, the U.K. is legally bound to keep air pollution below regulatory thresholds. Once the country leaves, there’s no guarantee those limits will still be observed.
“This is a very serious issue for the U.K.,” Michael Wilkins, managing director of infrastructure ratings at S&P, said in a report on Wednesday. “It could be more difficult to hold the government accountable for air quality standards.”