Coronavirus: Bank of England makes its most dramatic move in decades - but will it work?
Sky's economics editor Ed Conway writes that the Bank's latest intervention in the virus crisis will not be its last.
Thursday 19 March 2020 18:07, UK
It is saying something that the Bank of England's decision to cut interest rates to the lowest level since it was set up in 1694 is not the biggest story to come out of the institution today. But there we are.
Doubtless most attention will be focused on that unprecedented decision to take UK borrowing costs down to the unparalleled low of 0.1%.
This, after all, really might be rock bottom for mortgage and savings rates. While some other countries have delved into the weird world of negative interest rates, the structure of the UK's financial system makes that more unlikely.
But in a sense, the bigger decision from the Bank today was to restart the presses.
It dabbled with a bit of what economists call quantitative easing in the wake of the EU referendum, but it was a slightly half-hearted thing: an extra £60bn of money pumped from the Bank into the government bond market.
But this is the single biggest increase in QE ever. Unlike every other time the Bank started its electronic printing presses, the objective is not to dribble the money into the markets in a gradual way but to get it all in there as soon as feasible.
It is, in other words, perhaps the single most dramatic move the Bank of England has taken in recent decades, including even its financial era interventions.
But that, according to governor Andrew Bailey, is a sign of the times.
Speaking to journalists on a conference call shortly after the move was announced, he said: "We've seen very sharp moves in financial markets in the last few days, with assets moving into conditions which if not disorderly then were bordering on disorderly.
"We were seeing very sharp tightening in conditions, sharp movements into cash, sharp movements into dollars. We could see that reflected in exchange rates, in gilt yields, in spreads in markets. It was getting beyond the orderly."
In the past 48 hours there has been a mass sell off in global markets with a considerable pressure on the UK in particular.
The pound dropped to the lowest level since 1985 amid concern about the UK's exposure and reaction to the virus outbreak. Mr Bailey added that rumours over the past 24 hours of a possible lockdown imposed on London had caused extra stress in markets.
He added: "The time to act is now not later when we have the data. We were not going to wait until [the scheduled monetary policy committee meeting] next week: these things are moving too fast."
It comes just 24 hours after Mr Bailey told Sky News "the Bank of England's not done".
He said he hadn't ruled out more interest rate cuts, more quantitative easing and even more radical measures in the coming days. It is a sign of how concerned investors are in the UK's economic response to COVID-19 that he and the Monetary Policy Committee have had to act so soon.
And it is a sign of how concerned investors were in the UK and its currency that rather than falling, as a currency usually does when its central bank cuts its interest rate, the pound actually rose in the following hours.
Most intriguing of all, Mr Bailey again didn't rule out going even further in the coming weeks, possibly even using printed money to finance government giveaways to the public.
The moves today were dramatic. But they may not be the last we hear from the Bank of England in the coming days.