The Bank’s pre-emptive stimulus package
Date: 15th August 2016
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, includes discussion of the Bank of England’s monetary stimulus package.
The main points are:
- The Bank announced further monetary stimulus on 4 August, as expected.
- The package of measures was, however, more extensive than expected, comprising a cut in Bank Rate to 0.25%, a new Term Funding Scheme (TFS), the purchase of corporate bonds and a £60bn expansion of gilt purchases.
- The monetary stimulus is primarily intended to support the economy, given its “weaker outlook” after the Brexit vote on 23 June 2016.
- The Bank revised down its growth forecasts, though the economy is not expected to go into recession.
- Anecdotal evidence and surveys post-referendum are mixed. There is evidence of weakening business confidence though retail sales and car sales are holding up well.
- Eurostat confirmed that Eurozone GDP growth slowed to 0.3% (QOQ) in 2016Q2, from 0.6% in 2016Q1.
Ruth Lea said, “The overall impact on the real economy of the latest monetary policy measures is impossible to judge at this stage. The TFS is likely to be the most effective measure in terms of supporting the real economy, whereas the further driving down of interest rates will have very mixed results and risks further driving up asset prices.”
For full story:
Arbuthnot Banking Group PLC:
Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
Follow Ruth on Twitter @RuthLeaEcon
David Marshall, Director of Communications
020 7012 2432, 07502 285 835
Dan de Belder
020 3772 2561