Coronavirus: UK interest rate cut to help economy during outbreak
Support for businesses is contained in the package of measures announced following an unscheduled meeting of policymakers.
Wednesday 11 March 2020 13:04, UK
The Bank of England has cut interest rates and announced help for businesses in an emergency move to provide support amid the coronavirus crisis.
Hours before Chancellor Rishi Sunak was scheduled to deliver his budget, the Bank said it had cut its core base rate of interest, known as Bank Rate, from 0.75% to 0.25%.
It followed the lead set by the US Federal Reserve, which also cut its main rate by a similar margin last week following an unscheduled meeting of policymakers.
The Bank of England said it was to provide - at very close to the new Bank rate of 0.25% - a four-year loan scheme for small businesses to access cash via banks over the next 12 months.
It said the offer could provide up to £100bn in extra funding as firms expect to be squeezed by measures to restrict the spread of coronavirus - potentially crippling the economy.
The Bank's Financial Policy Committee, which identifies and acts on potential risks in the financial system, also lowered the so-called counter-cyclical capital buffer for banks to zero from 1%.
That essentially means they are required to hold less money in reserve - giving them more scope to boost lending further, by up to £190bn.
The Bank had been due to make its latest interest rate decision on 26 March, at the first scheduled meeting for incoming governor Andrew Bailey who succeeds Mark Carney next Monday.
Both had previously let it be known that such action was being considered.
Mr Carney told a news conference it was too early to forecast what economic hit the UK could expect, but warned it could be "large and sharp".
He described the measures as a "powerful package" taken in conjunction with the Treasury to ensure "maximum impact".
He also failed to rule out further stimulus ahead - with room to cut interest rates further and potentially boost its bond-buying programme, known as quantitative easing (QE), that was first deployed after the financial crisis.
News of the measures helped the FTSE 100 rise 2% at the open though the gains later petered out as official figures showed zero growth in the UK economy in the three months to January and during the month itself. Minutes after the chancellor started delivering his budget, it turned negative - down 0.37%.
US stocks had ended Tuesday sharply higher on hopes that Donald Trump would follow through on promises of tax cuts.
Financial markets have been seeking co-ordinated action from governments and central banks following steep losses of around 20% in global equity values over the past few weeks.
Investors have been spooked by the prospect of widespread disruption to the global economy because of restrictions likely to be placed on consumers and businesses.
The UK measures were welcomed by banks and business groups alike.
A Lloyds Banking Group spokesperson said: "The package of measures announced by the Bank of England will further strengthen the ability of UK banks to continue to support our customers through the COVID-19.
"This will build on the additional support we announced for retail customers and businesses yesterday."
The lender later added that it was to pass on, in full, the cut in Bank Rate to those customers with tracker mortgages across its group of brands.
Savings rates would fall too, it said, but not by as much as the 0.5% reduction.
Rivals were expected to follow suit.
BCC director general Dr Adam Marshall said: "The Bank and UK financial institutions must now work together to ensure that these policy measures translate into real-world support for firms on the ground.
"We will want to see banks using new flexibilities to do everything they can to help businesses whose cash flow and prospects have been disrupted due to the impacts of Coronavirus."
Neil Wilson, chief market analyst at Markets.com, said: "The Bank of England fired its big bazooka today with a 50bps cut to rates, but it's really an appetizer for the main course later.
"This takes the Bank base rate back to its all-tome low at 0.25%. They're loosening rules around capital buffers for banks and estimate it will be worth £290bn in extra funding. The key question is whether banks will simply lend more? It needs to come with genuine commitment."