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The Bank of England has slashed interest rates from 0.75% to 0.25% in an emergency move to counter the \u201ceconomic shock\u201d of the coronavirus outbreak.<\/p>\nThe Bank of England has slashed interest rates from 0.75% to 0.25% in an emergency move to counter the \u201ceconomic shock\u201d of the coronavirus outbreak.<\/p>\n
The Bank said the decision follows the spread of Covid-19, which has seen stock markets and shares plunge around the world.<\/p>\n
The move \u2013 which comes ahead of measures also expected in the Chancellor\u2019s Budget on Thursday \u2013 sees rates taken back down to all-time lows, with the Bank also announcing extra action to bolster lending by billions of pounds to support households and businesses.<\/p>\n
In a statement, the Bank said the package of measures would help the UK manage through an \u201ceconomic shock that could prove sharp and large, but should be temporary\u201d.<\/p>\n
It is the first cut since August 2016 and the first unplanned rates decision since the 2008 financial crisis.<\/p>\n
London\u2019s FTSE 100 Index surged nearly 2% in early trading after the cut.<\/p>\n
The Bank said: \u201cAlthough 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.<\/p>\n
\u201cTemporary, 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.<\/p>\n
\u201cSuch issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy. \u201d<\/p>\n
The rate cut decision was taken at a special meeting of the Monetary Policy Committee (MPC) which ended on Tuesday and the vote was unanimous.<\/p>\n
The Bank\u2019s \u201ccomprehensive and timely\u201d package of measures also includes a new term funding scheme with additional incentives for small and medium-sized enterprises (TFSME), designed to further boost boost lending and ensure banks pass on the rate cut.<\/p>\n
Further action by the Bank\u2019s Financial Policy Committee, which monitors the stability of Britain\u2019s financial system, has also been taken to lower bank capital buffers and effectively bolster their lending power by up to \u00a3190 billion.<\/p>\n
The Bank said its measures will \u201chelp to support business and consumer confidence at a difficult time, to bolster the cash flows of businesses and households, and to reduce the cost, and to improve the availability, of finance\u201d.<\/p>\n
Earlier this month, the US Federal reserve cut its own interest rates in response to the coronavirus fears, and Andrew Bailey, the incoming governor of the Bank of England, was already under pressure to follow suit with a cut.<\/p>\n
Businesses across the country have already reported sharp falls in custom, as tourist numbers dry up and more people stay home, and are making preparations for widespread self-isolation.<\/p>\n
The FTSE 100 tumbled by 8% on Monday, in one of the biggest single-day falls since the financial crisis, with coronavirus fears and an new oil war between Russia and Saudi Arabia denting the markets and economy.<\/p>\n
The British Chambers of Commerce director general, Dr Adam Marshall, said: \u201cBusinesses will welcome the decisive action taken by the Bank of England to support the economy at this delicate moment.<\/p>\n
\u201cThe 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.\u201d<\/p>\n