Carney rips his shirt off – BBC News

The Monetary Policy Committee has thrown the kitchen sink at the stuttering UK economy. But the governor knows he’s not Superman.

Source: Carney rips his shirt off – BBC News

The cut in the bank rate, the first in 7 seven years and at the lowest rate in history, demonstrates that the Bank of England is not particularly confident¬†about UK economic prospects. With falling confidence indicators, such as the Purchasing Managers’ Index (PMI), as a result of the uncertainty caused by Brexit, the Bank has acted quickly to loosen monetary policy to encourage spending by both households and firms. Lower rates reduce the incentive to save and encourage borrowing as the reward for the former falls and the cost of the latter decreases. However, will a 0.25% cut make a real difference? Rates were already at a historic low – will we see negative rates, used by Japan, ECB, Sweden, for this first time in B of E history? Either way, growth forecasts have been slashed, as predicted by most economists prior to the Brexit vote.¬†In the short-term, at least Brexit appears to be making the country worse off than it would have been otherwise. Long-term, well time will tell.


Japan issues a 10 year government bond with a negative yield

The Japanese bond market had an historic day on Tuesday, selling 10-year bonds at a negative rate or yield. The news was the front page headline in the FT

Source: Japan issues a 10 year government bond with a negative yield | Economics | tutor2u

Speculators pay to lend to the Japanese government. Expectation that they will make a profit by selling the bond to the BoJ at some point in the future.