BOE shocks with emergency rate cut to combat coronavirus fallout

The Bank of England yesterday slashed its main interest rate to 0.25 percent in an emergency move to combat the fallout from the coronavirus outbreak on the UK economy.

In a statement, the BOE said that at a meeting on Tuesday, “the Monetary Policy Committee voted unanimously to reduce the Bank Rate by 50 basis points to 0.25 percent.”

The reduction from 0.75 percent heads a “package of measures to help UK businesses and households bridge across the economic disruption that is likely to be associated with COVID-19,” the central bank added.

The BOE’s biggest rate cut since the global financial crisis more than a decade ago came ahead of the UK government’s first budget since Brexit, which itself was set to be dominated by action over the coronavirus.

“Although the magnitude of the economic shock from COVID-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months,” the BOE said.

Temporary, but significant, disruptions to supply chains and weaker activity could challenge cash flows and increase demand for short-term credit from households and for working capital from companies.

“Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy.”
BOE policymakers, led by outgoing governor Mark Carney, also voted to allow retail banks to provide cheap lending to businesses, aided by central bank reserves.

Andrew Bailey, head of Britain’s financial regulator, replaces Carney as governor of the BOE on Monday.

The pound  fell sharply on the surprise BOE announcement, before quickly recovering some ground — notably, against the dollar.
The London stock market opened up 2.1 percent, mirroring strong gains for other European indices, helped by a strong Wall Street performance overnight.

Finance minister Rishi Sunak was due to present the budget in parliament yesterday.

“We’re looking at what the impact (of the virus) might be, whether it’s on businesses ... on our public services, and in all cases, on Wednesday, you will hear from me the various options and policies that we can put in place to provide that vital support,” Sunak said at the weekend.