LONDON (AP) – The Bank of England is expected to cut its key interest rate closer to zero on Thursday and possibly inject billions in new money into the financial system as it tries to shore up an economy weighed down by the uncertainty over the vote to leave the European Union.
Surveys of business activity carried out since the June 23 vote suggest that the economy is contracting at its sharpest rate since 2009. Manufacturing, services and consumer spending are falling, the pound is down 10 percent and questions linger over what trade relations the country will have with the rest of the EU in coming years.
As a result, the Bank of England is expected to cut its key interest rate from a record-low 0.5 percent, diverging from policymakers at the U.S. Federal Reserve who in December raised their benchmark for the first time in seven years. The bank may also expand its stimulus program called quantitative easing under which it buys government bonds from banks with newly created money, effectively pumping extra money into the economy.
“The U.K. is facing a serious crisis here,” said Nariman Behravesh, chief economist for consulting firm IHS. “The Bank of England needs to do something and it needs to do something bold.”
While many analysts forecast a 0.25 percentage point rate cut, Behravesh suggested that this might not be enough to revive a stalling economy. A bold move would be, for example, to return to bond-buying at the level seen during the financial crisis – that is, 375 billion pounds – and other efforts to stimulate lending.