Bank of England lowers key interest rate: The Bank of England is out of control – WirtschaftsWoche

The rate cut by the British monetary authorities is a wrong decision. It will harm the UK in the long term.

The race for the lowest interest rates and the effective powerful flood of money among the major central banks go to the next round. After the monetary authorities have eased in Japan and Australia in recent days, the monetary policy, now puts the Bank of England after. Referring to the deflationary effects of the Proposed referendum on United Kingdom membership of the European Union decision, the monetary authority surprised the financial markets with a comprehensive package of easing.

So they decided the key rate at which commercial banks borrow central bank money at the central bank can to halve to 0.25 percent. This is the lowest level in history, founded in 1694 Fed. In addition, the monetary authorities take the purchase of government bonds on again, the inventory on its balance sheet to increase by 60 billion to 435 billion pounds. In addition, they buy up to 10 billion pounds corporate bonds. In addition, banks receive central bank money at particularly favorable conditions when they use this for lending.

Earlier, the Bank of England had been the obligation of banks to underpin loans with equity, eased. In addition, the central bank deposits are deducted from their total assets, when it comes to determine their capital adequacy ratio. Both should give banks more leeway to lend.

The reason for re-opening of the floodgates is the concern of central bankers before the crash of the British economy. The mood in the economy and among consumers has deteriorated significantly after the Proposed referendum on United Kingdom membership of the European Union decision. Important leading indicators such as the PMI signaling a contraction in economic output in the third quarter after the gross domestic product had risen by 0.6 percent in the second quarter.

has the Bank of England lowered its key interest rate and want to buy bonds. Thus, the Bank of England responded to the Proposed referendum on United Kingdom membership of the European Union-shock.

The National Institute of Economic and Social Research prized risk a recession is now at 50 percent. Mark Carney, governor of the Bank of England, has therefore made it clear that the central bankers are arms at which to ease monetary policy further, the unfavorable economic assessments should be true. The Bank of England so firing on all cylinders.

But bringing the business the expected momentum? Does it help the Proposed referendum on United Kingdom membership of the European Union unscathed her? Doubts are justified. There is great danger that the flood of money the economy in the long term more harm than good.

First suffers the British economy from the uncertainty as to the Brexit- Decision in terms of foreign trade, movement of capital and freedom of movement continues. Many businesses and individuals have for now put their investment and consumption plans on hold. However, this uncertainty can not be eliminated by lower interest rates and a flood of money. These rather quick and focused negotiations with the EU countries are needed to ensure free trade in the future. Companies who are worried about their markets can not be carried away by lower interest rates on investments.

Second press the targeted purchases of government bonds to finance costs for the public sector downward. This gives the government incentives to plunge into new debt. The danger grows that the questions put by Prime Minister Theresa May promised stimulus packages (tax cuts, higher government spending) will be financed through loans. Higher debt but endanger the creditworthiness of Britain and drive the tax burden of future generations in the height.

Third favoring purchases of corporate bonds, the large farms, which rely on the capital market. Smaller companies, which rely on their banks, remain outside. This is industrial policy of the worst kind, it slows down the innovation and structural change. The company will also receive incentives to increase their leverage. This makes them more vulnerable to crises and increases the risk of bankruptcy.

Fourth lower interest rates reduce the attractiveness of the United Kingdom for foreign investors. Because of the high current account deficit of 5 percent of economic output, the country is reliant on capital inflows from abroad. Failing such progress, the British need to export more or import less, thus to tighten their belts.

Fifth flushes the flood of money the British pound soft. Thus, the exchange rate of the pound was after the announcement of the interest rate decision against the US dollar significantly. The pound could be in the next few months to carry trade currency, the outflow of capital is then further push the exchange rate down. As a result, imports become more expensive, inflation rises, decreases the real purchasing power of citizens, the British are poorer

The decision of. Bank of England to open the floodgates, therefore is a wrong decision. Instead of helping the economy, driving the monetary easing government, businesses and citizens further into debt, distorts the conditions of competition between companies, reduce the attractiveness of Britain for investors, pushing inflation in the air and reduces the long-term prosperity the country. Britain is the great opportunity offered by the Proposed referendum on United Kingdom membership of the European Union the country for better economic policy to gamble.