Bank of England Hints At Helping

Bank Of England

Image source:

What's going on?

The head of Britains central bank, the Bank Of England (BoE), suggested that it would cut its (benchmark) interest rate this summer as a result of the economic damage done by the Brexit vote. His comments sent the value of the pound down by about 1% versus the US dollar and UK stocks up about 1%.

What does this mean?

Currently, the benchmark interest rate sits at 0.5% in the UK – its likely to be cut by at least 0.25% in the summer. The idea is that lower interest rates will make it cheaper for businesses and people to borrow money and therefore more likely to do things like invest in new equipment or buy homes. Also, the weaker pound should help UK companies sell goods overseas and boost tourism (click here to find out why lower interest rates cause the pound to go down).

Why should I care?

For the markets: The BoE is better placed to be effective than other central banks. The European Central Bank and the Bank of Japan are currently pretty much trying everything in their arsenal to boost economic growth (e.g. negative interest rates, directly buying companies bonds). And, arguably, such extreme measures are proving ineffective. Britains central bank has some more ammunition to work with before it is left in a similar situation.

The bigger picture: The head of the BoE said he was confident in the UKs ability to adapt. Amidst the gloom, he said the UK can handle change, and suggested that its not a question of whether the UK will adjust to its new reality, but how quickly and how well. He also reiterated a point that many other central bankers have made: its time for the politicians to step up and take responsibility for the future prosperity of their economies (e.g. to stop relying on central banks to do the heavy lifting).

Originally posted as part of the Finimize daily email.

The top 2 financial news stories in 3 minutes. Join over one million Finimizers

Read next

A Hollywood Deal

Sign up to Finimize

Get the two most important global financial news stories each day. Sent at midnight UK time.

Get started with one email a day

The top financial news stories in 3 minutes.