After much hype surrounding the build up to yesterday’s Bank of England meeting, the central bank didn’t disappoint in announcing an aggressive package of monetary easing. The 25 basis point cut in the interest rate to an all-time low of 0.25% stole the headlines, with the move into uncharted territory coming as the bank announced the lowest ever base rate in its 322-year history. While this was widely expected in the markets, the £60 billion expansion to the QE programme alongside a new term funding scheme (TFS) were both dovish surprises and served to send the FTSE rallying and the pound sinking.
No negative rates for the BoE
With the announcement that the base rate would be lowered to 0.25% at midday yesterday, there was almost immediately some discussion as to whether the BoE would follow its European and Japanese counterparts into negative territory in the not too distant future. During Governor Carney’s press conference half an hour later, he stated that there was scope for further easing along all three channels but was keen to stress that he didn’t foresee a move into negative territory.
Housebuilders boosted by rate cut
The best performing stock on the FTSE 100 this morning is Hikma Pharmaceuticals (LON:HIK), with its price trying to recover some of the strong declines this week in the final day’s trade. Housebuilders have received a welcome boost as they continue to attempt to recoup some of the losses seen since the Brexit vote, with Berkeley, Barratt Developments (LON:BDEV) and Taylor Wimpey (LON:TW) all firmly higher so far this morning. The banking sector as whole is vulnerable to rate cuts, and the weakness seen heading into BoE announcement was representative of this. The TFS announcement alongside the strong hints that the Bank wouldn’t implement negative rates have proved mildly supportive for banks on the whole, or at least helped to avert a worst case scenario. HSBC and Barclays (LON:BARC) stock has risen so far today, and whilst RBS (LON:RBS) is the worst performer at the bottom of the index this is largely due to its poor earnings release this morning rather than the BoE move.