"The Bank's further loosening of monetary policy could prove problematic for the UK economy. The falling pound means that inflationary pressures are already building up, and today's decision will exacerbate them".
-Daniel Mahoney, the Centre for Policy Studies
As markets expected, the Bank of England (BoE) introduced a range of additional monetary policy measures and upgraded its growth and inflation forecasts at its August meeting on Thursday amid Britain's decision to leave the European Union. All nine members of the Monetary Policy Committee voted anonymously to cut the main lending rate to a record low 0.25% from 0.50%. Furthermore, the central bank expanded its quantitative easing (QE) programme to 435 billion pound from 375 billion pound, while markets expected the BoE to leave its QE scheme unchanged. Three of nine policymakers voted unanimously against the decision.
The latest batch of surveys showed that the UK economy contracted at its steepest pace and may even slip into recession following the Brexit vote, however, the BoE kept its 2016 economic growth forecast unchanged at 2.0%, as the UK economy had a stronger than expected performance in the first half of the year. Nevertheless, the central bank lowered its 2017 growth forecast to 0.8% from an earlier estimate of 2.3%, while the 2018 estimates were slashed to 1.8%. Moreover, the BoE increased its 2018-2019 inflation forecast to 2.4% amid weakness in the Sterling.
© Dukascopy Bank SA