But the likelihood of rates being slashed from their already historic low of 0.5% sent the pound tumbling once more, close to its 31-year low against the dollar seen in the aftermath of the Brexit vote.
The pound, however, did not like the news as much, tumbling close to the 31-year low against the U.S. dollar that it saw just after the Brexit vote.
The FTSE 100 has gained for a fourth consecutive day to reach a 10-month high, in the wake of Mark Carney’s speech hinting at monetary easing over the summer, while the United Kingdom government bond market responded with its first ever negative yielding gilt.
Carney hinted at a further rate cut as early as the next meeting of the Monetary Policy Committee on July 14.
That would be followed by a full assessment when the Bank updates its forecasts for the economy on August 4. “In August, we will also discuss further the range of instruments at our disposal”, he added.
Britain’s shock decision to opt for a so-called Brexit in the June 23 referendum also led to the resignation of Prime Minister David Cameron, sparking a leadership battle, while the opposition Labour Party is in chaos. “If cuts do materialise then the lower cost of debt could help boost company’s investment plans, which they may have put on the back burner after Brexit”, Nathan Sage, Market Analyst at PhillipCapital UK, said in a note.
‘As expected, sterling has depreciated sharply, ‘ he said.
The FTSE 100 rallied yesterday following Bank of England governor Mark Carney’s speech pledging more monetary stimulus to the economy.
“It would be irresponsible of me, or any of my other colleagues, to walk away from those obligations, because those are our obligations under statute”, he said.
“One uncomfortable truth is that there are limits to what the Bank of England can do”, he said. However, he once again noted the disadvantages of cutting the key interest rate below zero, which he warned could “perversely” reduce the availability of credit.
On Thursday, Mr Carney said a deteriorating outlook meant action from the Bank was likely this summer. “It’s all about the relief that central banks have intervened”.
It also creates the distinct possibility of further quantitative easing over the summer.
“This will provide additional flexibility in the Bank’s provision of liquidity insurance over the coming months”, he added.
“This will be driven by much bigger decisions; by bigger plans that are being formulated by others”.
Interest rates have been at 0.5% for more than seven years after they were slashed during the UK’s downturn and the global financial crisis.