Bank of England deputy governor Ben Broadbent says interest rate cut does not send out message of panic

Bank says decision to leave the EU will lead to lower growth, higher inflation, fewer jobs and ordinary people worse off

Ben Broadbent, the deputy governor of the Bank of England, defended the decision to cut interest rates (Reuters)

Ben Broadbent, the deputy governor of the Bank of England, has defended the decision to slash interest rates to an historic low of 0.25 per cent alongside a package of heavyweight monetary stimulus to stave off a UK recession in the wake of the EU referendum.

Mr Broadbent was asked whether the measures announced on Thursday risked causing panic by pre-empting a recession before one had occurred.

“We have a huge amount of evidence on monetary easing and I can’t think of one bit of it that shows it is bad for confidence,” Mr Broadbent said.

“I’m pretty confident it will have an effect. We introduced something called the term funding scheme which means banks will be able to pass on the cut to customers in an orderly manner.”

As well as slashing interest rates from a seven-year low of 0.5 per cent, the Bank of England said it would lend as much as £100bn to banks to ensure the stimulus reached the economy.

The new plans add up to a total £170bn spent on propping up the UK economy since the financial crisis of 2008.

Broadbent said the referendum had marked a huge change for the economy, with many of the consequences likely to be structural in nature.

“Changes will involve big structural changes in the economy that cannot fully be offset with monetary policy. What monetary policy can do is offset something worse than that,” he told BBC Radio 4’s Today programme.

The Bank of England measures were unveiled amid the most drastic set of growth downgrades in modern history.

It said the economy would virtually grind to a halt in the wake of Brexit, coming perilously close to recession.

The Bank is now expecting quarterly GDP growth to slump to just 0.1 per cent in the third quarter of the year.

Timothy Graf, head of macro strategy at financial services provider State Street, said that the Bank of England stimulus went further than the market had anticipated.

“They appear more concered about the prospect of a deep recession than their inaction last month might have suggested. I am surprised that they decided to implement a number of measures to address the problem at such an early stage, but given the sharp drops we have already seen in the survey data, they likely anticipate more bad news to come,” Graf said.

Other commentators said that the package was premature. Ben Habib, CEO of First Property Group, said that lower interest rates will adversely affect bank profits and savings institutions, while failing to assist the real economy.

Many agreed with the Bank of England's assessment that the decision to leave the EU would lead to lower growth, higher inflation, fewer jobs and ordinary people worse off.

“Following the United Kingdom’s vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly,” the Bank of England said.