Fin 301 Lesson 10
Topic: Bank of England to cut interest rates next week according to financial markets
The article summarizes how the Bank of England expects a decline in the financial markets. The bank gave an announcement about a potential reduction of the interest rates with an aim of stimulating economic activities after the outcome of the EU referendum. The bank’s MPC was concerned about the negative impacts of the EU referendum outcome which could reduce the interest rates by a 78 percent (Cordell, 2016). From 2009, the interest rates have remained at 0.5 per cent. The outcome of the EU referendum led to slowed economic activities which have been attracting a reduction in the interest rates.
It is expected that a reduction of the current interest rates could open an opportunity for reducing the rates to zero in the upcoming months. The market analysts have argued that there is a 27 percent possibility of zero interest rates occurring in August (Cordell, 2016). Carney of the Bank of England has been widely recognized for his dismissive attitude towards more extreme policy alternatives including the negative interest rates.
Nevertheless, the swaps markets indicate market are pricing 8 percent likelihood that he will reduce the rates to below zero before the end of the year. It is also critical as the interest rates in the UK impacts on the pricing of the global stocks. The global stocks will need strong interventions from the British government to reduce the volatility in the markets. Even though the US reported positive Jobs data, the outcome of the EU referendum has caused many fears in the global economy.
The article discussion is important in understanding the nature of corporate finance, as it impacts on the interest rates relating to the financing of the projects. It is important to analyze the impacts of the EU referendum in the UK on their economy. It is because it assists in assessing the nature of corporate finance to promote effective analysis in the economy. The relevance of interest rates on the performance of the businesses cannot be understated. I think that the Bank of England should act immediately to ensure that the economy does not enter into a recession. It is because the outcome of the election is influential on the direction of the UK economy.
Cordell, J. (2016, July 7th). Bank of England to cut interest rates next week according to financial markets. City. A.M. Retrieved from http://www.cityam.com/244982/-per-cent-chance-interest-rate-cut.