Bank of England’s meaningful action boosts asset prices

The prospect – and subsequent delivery – of monetary policy stimulus from the Bank of England in August has helped UK assets to continue their recovery from the shock of the vote to leave the EU. Admittedly, expectations that interest rates will stay looser for longer has prevented any significant recovery in the pound following its post-vote collapse. But, by boosting the value of UK firms’ overseas earnings, this has pushed UK equity prices up to a 13-month high in sterling terms. What’s more, the combination of an interest rate cut (and a good chance of a further monetary policy loosening to come) with the resumption of the Bank’s Asset Purchase Programme has driven down the yields on government and corporate bonds to historical lows. In addition, with interest rates now not far above zero, and the Bank apparently unwilling to deploy negative rates, the current schedule of asset purchases could be beefed up should the incoming data point to a further deterioration in growth in the near term.