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As buyers monitor 'cheap' UK firms...

Bank poised for first interest rate cut in seven years

Mark CarneyThe Bank of England is poised to cut interest rates this week for the first time in seven years.

Mark Carney, governor of the Bank of England, has pledged to do whatever is required to help the economy withstand downward pressure from the Brexit decision. It is now widely expected that interest rates will be cut to 0.25%, the first cut since March 2009.

This should add a further stimulus to borrowing by businesses after the Bank of England last week eased rules on the “capital buffers” that banks must hold, freeing up a further £150 billion they can lend to households and businesses.

Stocks in London rose on Friday on expectations of a 0.25% cut and after better than forecast job numbers from America.

The FTSE 100 index of leading shares rose to its highest level for 12 months. It was 0.87% or 56.8 points higher at 6,590.6 at the close, its highest since August 2015.

This means it has recovered all its losses which followed the referendum on Britain’s membership of the European Union on 23 June. It fell to 5982.2 on 27 June.

Howard Archer, chief European and UK economist at think tank IHS Global Insight, said: “I think he will cut rates in July and either increase quantitative easing or bring back the Funding for Lending scheme in August.”

The Brexit decision has sent sterling to a 31-year low against the dollar. This has raised hopes that there will be an uplift in British exports to help close the trade deficit.

However, it has also left a lot of British companies exposed to takeover from the US. The weakening pound means that UK-listed companies have become 15% cheaper for US buyers almost overnight and M&A departments have noted an increase in enquiries from overseas.

While the value of the market in US dollar terms has been dented by the slump in sterling, the rise in the index raise further hopes that the underlying global economy will resist worries over Britain’s exit from the EU.

Traders were heartened by a surge in US jobs in June, together with slower wage growth, though they were divided on whether the latest data made the Federal Reserve more or less likely to hike interest rates.

Housebuilding stocks, which among the biggest victims of the rout, staged a comeback today. Taylor Wimpey and Persimmon were among the biggest gainers.

Marcus Bullus, trading director at MB Capital, said: “The US jobs market has just reminded us that the UK has no monopoly on volatility.

“Its rate of job creation jumped from 11,000 new jobs in May to 287,000 in June. That’s not a reversal, it’s a revolution”

 

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