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Bank of England leaves rates level
July 14, 2016, 11:16 am

BoE Governor Mark Carney has not introduced a rate cut, as many in the market had anticipated [Xinhua]

BoE Governor Mark Carney has not introduced a rate cut, as many in the market had anticipated [Xinhua]


European markets rallied early Thursday even before the Bank of England made the surprising decision not to lower interest rates as a means to stave off recession for the UK.

The Bank of England has resisted dealing with interest rates over the course of the past nine years.

The rate remains at 0.5 per cent.

However, post-Brexit risks identified by the BoE as early as March have started to crystallize, BoE Governor Mark Carney recently said. This led many in the markets to expect at least a 0.25 per cent cut to the interest rates as a means to encourage banks to lend more money.

An hour before the BoE statement, London’s FTSE rose 0.95 per cent to 6,733.

In mainland Europe, France’s CAC 40 rose 1.01 per cent to 4,378 while Frankfurt’s DAX jumped 1.42 per cent to 10,071.

The BoE move today means that at least in the interim, it will not mimic the approach of the US Federal Reserve in 2008 and 2009 when it was dealing with efforts to minimize the impact of the subprime mortgage crisis which later morphed into the global financial crisis.

But some analysts feel that the BoE may need to resort to more quantitative easing.

The newly appointed Chancellor of the Exchequer Phillip Hammond has already weighed in on the status of the economy just one day into the job.

He told the BBC that Brexit has unnerved markets with many companies preferring a ‘wait-and-see’ approach. He praised the quick appointment of a successor to former Prime Minister David Cameron and said he would do whatever it takes to put the economy on a stable footing.

The BoE meets again in three weeks and some analysts are predicting that Carney could move to produce some stimulus package to increase liquidity in the markets.

For the moment, monetary policy will be accommodative as the BoE’s central committee waits to more fully grasp the impact of Brexit.

In today’s minutes, the BoE said: “The precise size and nature of any stimulatory measures will be determined during the August forecast and Inflation Report round.”

The BRICS Post with inputs from Agencies