FXstreet.com (Barcelona) - The Bank of England, as widely expected has cut its Bank rate by half percentage point to 1.5% the lowest interest rate level ever, in order to kick start economy.
The Bank alerts about the unusually sharp and synchronized downturn global economy is going through, with business and consumer confidence plummeting at fast pace, whole world trade expected to remain weak for a considerable time.
British economy, according to the Bank is expected to remain sluggish during the next months, as surveys on activity and retail sales, have been showing, while residential investment continues deteriorating, and the availability for credit for households and businesses has tightened further. In this line, the Bank calls for further measures to increase the flow of lending to the non financial sector.
Inflation seems to be withdrawing after having reached its top, the Bank expects this deflationary trend to hold during tjheh coming months on the back of waning contributions from retail energy and food prices and the direct impact of the temporary reduction in Value Added Tax.
Finally, the Committee notes that the recent easing in monetary policy, plus the substantial fall on the Pound and the lower inflation will all together provide a considerable stimulus to activity as the year progressed. Although, the Committee warns about the volatility in inflation associated to the reduction of the VAT tax posts a considerable risk of undershooting the 2% inflation target on the medium term at the current level of the Bank Rate. Accordingly, the Committee considered necessary a 0.5% cut to 1.5% to meet the target in the medium term.