Bank of England Panics: Cut Rates, Adds QE, Will Buy Corporate Debt and Launched Term Funding Scheme

Well part of the BOE's present announcement has already been telegraphed in response to Brexit. 

But the unveiling of the other segments of the BOE Governor Mark Carney's bazooka signifies a manifestation of desperation. 

Chart from Bloomberg

From the Telegraph.co.uk

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The Bank of England has cut interest rates for the first time in more than seven years as it unveiled a package of measures designed to prevent a recession following the Brexit vote.

Policymakers voted unanimously to cut rates to 0.25pc on Thursday, from a previous record low of 0.5pc.

Bank Rate had previously been held at 0.5pc since March 2009, and officials signalled that a "markedly" weaker growth outlook meant a further cuts towards zero were likely in the coming months.

In a 170bn package of additional measures designed to stimulate the economy, the Bank announced it would also.......... Expand its quantitative easing programme by 60bn over six months, taking its stockpile of asset purchases up to 435bn over the coming six months, from 375bn today.

Buy up to 10bn of high quality corporate debt starting in September in a bid to drive down corporate funding costs. Policymakers said buying these bonds "could provide more stimulus than the same amount of gilt purchases". The Bank said the size of the pool of eligible bonds was likely to be around 150bn.

Launch a "Term Funding Scheme" designed to offset the impact of cutting interest rates on bank profits. This will allow commercial banks to borrow a proportion of their outstanding lending to UK businesses and households for four years at rates close to 0.25pc. The scheme will be funded by new money created by the Bank, with usage estimated to be up to 100bn.

Staff slashed their year-ahead UK growth forecasts on Thursday by the biggest margin since it started publishing quarterly economic forecasts in 1993, but stopped short of forecasting a Brexit-induced recession.

Growth in 2017 is now forecast at 0.8pc, down from a previous forecast of 2.3pc in May.

However, it expects expects the economy to grow by 0.1pc in the third quarter, and to expand slightly in the final three months of the year, even though it said the UK was likely to see "little growth in GDP in the second half of this year".

This would see the UK avoid a technical recession, defined as two consecutive quarters of economic decline.

Like almost every central bank, the BOE's addiction to monetary means to solve real economic problems extrapolates to an act of desperation. Instead of alleviating the present predicament, such drastic measures will only exacerbate on the extant malinvestments, compound on price-economy distortions and deepen uncertainties that will lead UK to a recession. 

Said differently, it will not be Brexit that will serve as the main cause of a recession but the BoE's previous boom bust policies which will exacerbated by the supplemental ones added today.

Property prices have already been in a slump even before Brexit. From Bloomberg (August 3): Home prices in London’s Knightsbridge district dropped 7.3 percent in the 12 months through July, the biggest annual decline in almost seven years, as Britain’s vote to leave the European Union accelerated price drops caused by rising taxes. Values fell 1.5 percent across central London’s best districts, with prices in Chelsea down 7.2 percent, broker Knight Frank said in a Wednesday report. Rents in the area known as prime central London fell 3.6 percent in the period and the number of new properties offered for lease rose 49 percent in the second quarter, according to data compiled by the broker. 

Brexit only served as an aggravating circumstance to what has been an economy dependent on bubbles.

In the current oxymoronic milieu, while central banks and governments panic on their respective economies to resort to desperate measures, stock market participants indulge in panic buying!