Bank of England makes its second rate cut in eight days in bid to reverse bond turmoil
The Bank of England could barely wait more than a week before cutting interest rates again.
The U.K. central bank, in a surprise and unscheduled meeting, opted to cut interest rates to 0.1% from 0.25%, having only cut them from 0.75% last week.
Perhaps more important to markets, it also announced it will increase its purchases of U.K. government bonds and investment-grade corporate bonds by £200 billion to a total of £645 billion. The Bank of England said most of the bond purchases will be government securities.
“Over recent days, and in common with a number of other advanced economy bond markets, conditions in the U.K. gilt market have deteriorated as investors have sought shorter-dated instruments that are closer substitutes for highly liquid central bank reserves. As a consequence, U.K. and global financial conditions have tightened,” the Bank of England said in a move that echoed the European Central Bank’s actions from Wednesday night.
Analysts were surprised by the move, which was the first rate cut under its new governor, Andrew Bailey.
“The Committee has gone big and early, again,” said Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics. “The £200 billion of asset purchases greatly exceeded economists’ expectations — we anticipated an extra £60 billion, while the consensus expected no purchases this month — and tops the £70 billion announced after the EU referendum.”
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