(London) AFP: The Bank of England (BoE) 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 Tuesday, “the Monetary Policy Committee voted unanimously to reduce 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 comes ahead of the UK government’s first annual budget since Brexit, due at 1230 GMT and which itself is 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 in its statement. “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,” the bank warned.
The BoE policymakers, led by outgoing governor Mark Carney, also voted to allow retail banks in Britain provide cheap lending to businesses, aided by central bank reserves. Andrew Bailey, head of Britain’s financial regulator, replaces Carney as governor of the Bank of England on March 16. Sterling meanwhile 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.