Stock market soars to 10 month high as Bank of England governor hints at interest rate cut
Millions of mortgage holders will get a boost if the rate is cut for the first time since March 2009
THE Bank of England governor hinted today at an interest rate cut this summer - sending the stock market soaring to a 10-month high.
A drop from the already historic low of 0.5 per cent will be a big boost for millions of mortgage holders - and make it cheaper for businesses to borrow money.
London’s index of blue chip companies - the FTSE 100 - reacted positively to Mark Carney’s words, climbing 2.27 per cent or 144.27 points to 6,504.33.
But his comments also led to a weakening of the pound - as he suggested the UK was suffering from “economic post-traumatic stress disorder” after last week’s EU referendum.
He also suggested the country’s financial health will deteriorate in the coming months, which hit the pound as it makes the UK less attractive to investors.
But he did stress “the UK can handle change” and would recover from any financial adversity it faces.
£1 was worth just $1.32 tonight, falling from nearly $1.35 earlier in the day, and hurting Brits travelling to the US on holiday - plus businesses importing from the States.
Sterling dropped as much as 1.5 per cent during Mr Carney’s speech.
But he stressed any decision to cut the rate would be done not by him alone - but after discussion with members of the Bank’s Monetary Policy Committee (MPC).
A cut could come as early as next month, analysts predicted tonight.
The bank’s rate setting committee is due to meet on July 14.
He added in August the nine-member committee will “also discuss further the range of instruments at our disposal”.
The Governor said: “In my view, and I am not pre-judging the views of the other independent MPC members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer.”
He also hinted that the Bank could pump more cash into the economy under its quantitative easing programme.
Mr Carney’s remarks are a stark contrast to the MPC’s view before the EU poll when it was predicted the next move for interest rates would be a rise rather than a fall.
In an effort to offer more words of reassurance, Mr Carney said: “It has one of the most flexible economies in the world and benefits from a deep reservoir of human capital, world-class infrastructure and the rule of law.
“Its people are admired the world over for their strength under adversity. The question is not whether the UK will adjust but rather how quickly and how well.”
He said: “Over the past few months, working closely with the Chancellor and with HM Treasury, we put in place contingency plans for the initial market shocks. They are working well.”
Last Friday morning, he revealed the Bank had access to £250billion to help stabilise the markets if needed.
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It has also offered emergency loans to banks to help them deal with the fall out from the referendum.
However, he also warned that “as a result of increased uncertainty and tighter financial conditions, UK households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise”.
It also emerged yesterday in the Bank’s annual report that Mr Carney’s pay for the year to mate February was £879,485, including his pension and other benefits.
This was slightly down on the £881,868 the year before.
The Bank of England is expecting the UK’s economy to grow by 2 per cent this year.
But economists have been more gloomy in their forecasting, with IHS Global Insight cutting its forecasts to 1.5 per cent from 2 per cent for 2016.
The interest rate has remained at 0.5 per cent since March 2009.
Ben Brettell, economist at Hargreaves Lansdown, said last night: “Once again we seem to be in a world where a few words from a central banker can move markets in an instant.
“The FTSE has just closed within a whisker of its highest level year-to-date, while sterling has lost a cent and a half against the dollar and more than a cent against the euro.
“Stock markets clearly love monetary stimulus far more than they hate Brexit-related uncertainty.”
The biggest risers on the stock market yesterday included British Gas owner Centrica, up 4.2 per cent, fellow energy supplier SSE, rising 5.6 per cent, and insurer RSA, up 4.9 per cent.
Tony Cross, a market analyst at Trustnet Direct, said: “As if the market’s behaviour in the wake of the Brexit referendum couldn’t get any stranger, the FTSE-100 has now pushed out to above 6,500 for the first time since before the Chinese equity market shock last August.”