Bank of England cuts interest rates in response to coronavirus impact
Bank of England announces emergency cut in interest rates in an attempt to limit the economic impact of the coronavirus.
The announcement follows a similar decision US Federal Reserve last week. The epidemic that began in China late last year is spreading around the world and affects all major economic systems including flight cancellations and strict quarantine measures in some cases. As of 11 March, there are 382 confirmed cases of COVID-19 in the UK, including Health Minister Nadine Dorris.
«At a special meeting on March 10, the Monetary Policy Committee (MCC) unanimously voted to reduce the bank rate to 0.25%», – said in a statement by the regulator on Wednesday.
The central bank also announced a new emergency financing scheme to support small and medium-sized businesses, as well as measures to help commercial banks lend more..
«After the spread of the infection, risky asset and commodity prices plummeted and government bond yields hit record lows, consistent with a marked deterioration in appetite for global and UK growth prospects. Financial Market Uncertainty Indicators Reach Extreme Levels», – said in a statement by the Bank of England.
Stock markets were feverish on Monday amid Italian quarantines and fears of a price war between oil exporting countries.
GBP fell immediately after the decision of the Bank of England, but quickly recovered losses. Index FTSE 100 opened in positive territory, trading about 1.5% higher.
Speaking at a press conference, Gov. Mark Carney said the coronavirus is a different form of shock than the 2008 crisis.. «Then the financial system was at the heart of the problem, there is no reason for the 2008 situation to repeat itself due to the virus, if we continue to monitor what is happening», – he thinks.
Data released last month showed the UK economy stagnated in the latter part of 2019. The UK faced some political instability at the end of the year. The country has also been embroiled in economic uncertainty since its decision to leave the EU in 2016..
«If we’re trying to get people to stay at home and not travel right now, what the hell could a rate cut??», – stated Jim O’Neil, Chairman of the British thinktank Chatham House.
«This regulator’s decision amazes me. The decline came too early. We shoot in the air, and we may still need these bullets if the demand does become much weaker.», – he added.
Surprised by the rate decision and David Owen, chief European economist at Jefferies, who noted that the Bank of England did not make such decisions even during the financial crisis after the stock market crash.
Today the head of the country’s finance department must present new budget plans. Rishi Sunak Expected To Announce Financial Incentives To Fight Virus Exposure.
The first budget plan, under the leadership of Prime Minister Boris Johnson, involves an increase in government spending, in particular on infrastructure and health care.. Some analysts also expect tax cuts and an imminent departure from fiscal consolidation..
«Budget to focus on emergency policy measures to tackle rising coronavirus risks», – Callum Pickering, British economist at Berenberg bank said on Monday.