Bank of England cuts interest rates
Summer for the United Kingdom has proven to be a tidal wave of changes. It is quite clear that Brexit still remains as a bewildering fog that covers the future direction of the country. Although country is still at a ‘post-referendum, pre-Brexit’ period, various sources show that business is not even slowing down in the UK. Speaking generally, the status has returned to ‘Business as usual-ish’ status with a lot of businesses even showing a large income growth during this summer.
Last week the Bank of England cut interest rates to 0.25% for the first time in more than seven years and warned high-street lenders to pass on cheaper borrowing costs to customers, in a bigger-than-expected package of measures designed to prevent a post-Brexit recession. 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. The move is expected to bring relief to borrowers. The Bank’s governor, Mark Carney, unveiled additional funds for banks to cushion the blow to their profitability from lower interest rates. He personally called bank bosses after Thursday’s announcement to make it clear the Bank wanted to see the full benefits of its anti-recession strategy felt by households and businesses.
All in all, the Bank announced following measures:
• A cut in official interest rates to 0.25%, the first such move since March 2009;
• Plans to pump an additional £60bn in electronic cash into the economy to buy government bonds, extending the existing quantitative easing (QE) programme to £435bn in total;
• Another £10bn in electronic cash to buy corporate bonds from firms “making a material contribution to the UK economy”;
• As much as £100bn of new funding to banks to help them pass on the base rate cut. Under this new “term funding scheme” (TFS) the Bank will create new money to provide loans to banks at interest rates close to the base rate of 0.25%. The scheme will charge a penalty rate if banks do not lend (the Guardian).
The currency value of the post-Brexit pound has understandably caused some concern in businesses and generally speaking made them more “currency aware”. However, a weaker pound is now cheaper to foreign investors and new businesses. Also, with the knock-on effect on rents and house prices, the cost of accommodation in London will become more affordable, which in turn will boost the attractiveness of starting a business in the UK.
On the banking side overdraft fees and an easier system of moving personal and small business accounts will be at the centre of measures that are intended to bolster competition in the banking sector. The Competition Market Authority has started to help to strengthen supply dynamics in the market and resolve some of these long-term issues by providing swift and firm remedies to boost opportunities for businesses.
A new budget has been set by the Competition Market Authority to find ways to make it easier for small and new businesses to operate within the UK.
Perhaps the brightest point after the Brexit vote, is that the country is bouncing back by already having a new government in place, Under Theresa May – who triumphed earlier than expected in the Tory leadership race. With the Prime Minister the country is no longer leaderless.
The new Prime Minister’s reputation for political caution is therefore mostly welcomed as a salve for self-inflicted British harm at this early point on the post-referendum timeline. Taking some time to look around and think ahead without jumping blindly is vital.
While, there are challenges that the British population will have to face still lie ahead. One thing is certain that the gears of business are still running and that Britain is still ‘open for business’.