The Bank of England has today cut rates to 0.1 per cent from 0.25 per cent and added further quantitative easing through increasing the bond purchase programme by £200 billion.
The Bank says its actions are designed to cut the cost of borrowing. It follows last week’s cut from 0.5 per cent to 0.25 per cent.
Analysts say the move should dampen down volatility in the Gilt market.
Franklin Templeton head of European fixed income David Zahn says: “We feel this further supports coordinated action taken by the MPC and UK Government last week. This should be supportive for the Gilt market as fiscal spending in the UK ramps up.
“The recent volatility in the Gilt market is not supportive of the BoE’s goals so it is not surprising that they have acted again. This demonstrates that the BoE will continue to provide liquidity to the market and wants to keep interest rates low for the foreseeable future. Given that they have cut rates to 0.1%, their self-defined lower bound, we would anticipate any further easing would be done through additional bond purchases. We expect that the BoE will focus on purchasing Gilts over a short time horizon and therefore Gilts should remain well anchored in the coming months.”
AJ Bell chief investment officer Kevin Doran says: “Once again we’re seeing central bankers using the playbook from the last financial crisis. Overnight we saw the ECB roll out the QE cannons and, now in an effort to be seen doing ‘something’, the Bank of England have waded in with an emergency rate cut.
“It’s the solutions of yesteryear when liquidity and credit were the problems. This time it truly is different – with a workforce on lockdown, there’s a production chasm about to open up.
“To fill the gap policy makers need to be working with Governments to introduce formal debt relief. Not forbearance, not interest holidays, but genuine relief from servicing debts as the world enters its enforced hibernation.”
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