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Round-up of the week

Posted on 5th August 2016

Bank of England cuts interest rates to 0.25%

Interest rates in the UK have been cut to a record low of 0.25 per cent.

This is the first time the Bank of England's Monetary Policy Committee (MPC) has reduced the cost of borrowing in more than seven years.

The move comes in response to ongoing uncertainties and likely adjustments in the economy in light of the UK's recent vote to leave the European Union.

Banks will be forced to pass on the new interest rate to households and businesses as part of the effort to support and stimulate the economy at this time.

Mark Carney, governor of the Bank of England, has not ruled out the possibility of interest rates being cut even further if it is deemed necessary.

"The MPC is determined that the stimulus the economy needs does not get diluted as it passes through the financial system," he commented.

Meanwhile, the Bank of England has revised its growth forecasts for 2017 to 0.8 per cent, down from the 2.3 per cent increase it was expecting in May.

"The economic outlook has changed markedly, with the largest revision to our GDP forecast since the MPC was formed almost two decades ago," Mr Carney said.

"By acting early and comprehensively, the MPC can reduce uncertainty, bolster confidence, blunt the slowdown, and support the necessary adjustments in the UK economy."

Business responds to rate cut

The MPC's decision has been welcomed by the CBI, which said it will provide a shot in the arm for business and consumer confidence.

Rain Newton-Smith, chief economist at the CBI, said it will also help keep liquidity "flowing through the economy".

"The Bank’s action will help restore confidence in the UK economy and what’s now most important to businesses is that the government develops a clear plan and timetable for EU negotiation," she commented.

Dr Adam Marshall, acting director general of the British Chambers of Commerce, added that the rate cut is "unsurprising".

He said the move reflects an "increasingly uncertain outlook" for the economy as the process of redefining the UK's relationship with the EU begins.

"Lower interest rates may give a helpful boost to market confidence, but have little long-term effect on businesses when rates are already so low," Dr Marshall commented.

"What businesses want is low, stable interest rates for the foreseeable future, which will enable them to make their own growth and expansion plans with confidence."

Dr Marshall went on to warn that further cuts in the base rate would be unlikely to stimulate the real economy significantly.

Furthermore, he said the threat of negative interest rates on businesses' deposits would a "significant concern to some".

Number of permanent job placements falls

Uncertainty over Brexit led to a drop in the number of permanent appointments in July.

The latest Report on Jobs from Markit and the Recruitment and Employment Confederation (REC) also found that permanent salaries went up at their weakest rate in more than three years.

However, temporary billings continued to rise, albeit at a slightly slower rate.

Kevin Green, chief executive of the REC, commented: "Businesses are highly cautious about committing to new hires. Economic turbulence following the vote to leave the EU is undoubtedly the root cause."

To discuss conditions in the labour market and operating environment further, speak to one of our experts here at The Maine Group!