The Bank of England has hinted that an interest rate cut is likely over the summer months. In a speech on Thursday (30 June), aimed at reassuring financial markets, governor Mark Carney said it was likely 'some monetary policy easing' would be required following Britain's decision to leave the European Union.
He said: 'In my view, and I am not pre-judging the views of the other independent Monetary Policy Commitee members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer.
'The committee will make an initial assessment on 14 July, and a full assessment complete with a new forecast will follow in the August Inflation Report. In August, we will also discuss further the range of instruments at our disposal.'
Carney said that Britain's economic outlook had 'deteriorated' on the back of the Brexit vote, but cautioned that interest rates cannot go 'too low'.
'As we have seen elsewhere, if interest rates are too low or negative, the hit to bank profitability could perversely reduce credit availability or even increase its overall price,' said Carney.
The other weapon in the Bank of England's armoury is the unleashing of another bout of money printing - quantitative easing.
The pound fell just over 1 per cent following Carney's speech, but the FTSE 100 rallied, with shares up 2 per cent to power above 6500, levels not seen since last August.
Ben Brettell, senior economist at Hargreaves Lansdown, commented: 'Once again we seem to be in a world where a few words from a central banker can move markets in an instant. Earlier this afternoon, before Mark Carney's speech, the FTSE 100 and sterling were broadly flat on the day.
'Following the governor's words, the Footsie has just closed within a whisker of its highest level year-to-date, while sterling has lost a cent and a half against the dollar and more than a cent against the euro.
'Stock markets clearly love monetary stimulus far more than they hate Brexit-related uncertainty.'
Sterling ended the day 1.4 per cent lower to trade at $1.3240. Nicholas Laser-Ebisch, analyst at foreign exchange firm Caxton FX, said Carney's speech 'inspired no confidence'.