Bank of England Lowers Interest Rates Following Brexit

Andrew Cummings
August 10, 2016

The UK markets finished more than 100 points up on Thursday following the Bank of England's decision to cut the base rate of interest to an historic low. It rose more than 3 percent Wednesday and it has been nearly two weeks since oil prices rose for two days in a row. This is created to "provide funding for banks at interest rates close to Bank Rate" and therefore "help reinforce the transmission of the reduction in Bank Rate to the real economy to ensure that households and firms benefit from the MPC's actions".

The number of Americans filing for unemployment benefits unexpectedly rose last week, but the labour market remains healthy and will probably continue to support economic growth for the remainder of this year.

"Folks would probably prefer to wait on those numbers before they make a commitment in front of them", said Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas. "In response, both gilt yields and sterling have fallen, while equity markets have moved higher". The Dow Jones Industrial Average plumbed in eight of the past nine days and seven days straight.

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MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 percent in early trade, led by gains in resource shares, recouping some of its 1.5 percent losses on Wednesday.

The central bank cut its key rate to 0.25 percent from a previous record low of 0.5 percent.

"By acting early and comprehensively, the (Bank) can reduce uncertainty, bolster confidence, blunt the slowdown and support the necessary adjustments in the United Kingdom economy", he told reporters.


The Bank of England is trying to counter the shock of the UK's vote in late June to leave the European Union. "The MPC can lower bank rate, increase the size of the TFS and expand the scale or variety of assets held in the asset purchase facility".

After Super Thursday, the market will look at the United States non-farm payrolls. The euro was steady at $1.1131 EUR=, set to end the week 0.4 percent lower.

SQUARE ONE: Mobile payments company Square climbed after it reported strong second-quarter results and raised its projections for the year. The stock rose $1.35, or 12.9 percent, to $11.79.


Spot gold was up 0.3 per cent at $US1,361.14 an ounce by 3:00 p.m. EDT (0500 AEST), off an earlier low of $US1,348.50, while US gold futures for December delivery settled up 0.2 per cent at $US1,367.40. Brent crude, which is used to price Global oils, dropped 34 cents to $42.76 a barrel in London. It's on track for a 0.4% gain for the week.

Brent crude, which is used to price global oils, added 45 cents, or 1 percent, to $43.55.

The British pound crawled up 0.2% to $1.3130 after retreating 1.7% overnight. Germany's DAX was up 0.7 percent to 10,245 and France's CAC 40 gained 0.5 percent to 4,343.


In Toronto, the S&P/TSX composite index gained a modest 16.73 points at 14,528.78. Cash earnings rose 1.3 percent compared with a year earlier, compared with a 0.1 percent decline in May. The dollar was little changed at 101.09 yen and the euro dipped to $1.1135 from $1.1145.

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