UK markets closed
  • NIKKEI 225

    -255.33 (-0.86%)

    -356.71 (-1.21%)

    +0.26 (+0.43%)

    +10.70 (+0.62%)
  • DOW

    -1.05 (-0.00%)

    -809.52 (-2.31%)
  • CMC Crypto 200

    -26.20 (-2.66%)
  • ^IXIC

    -115.42 (-0.85%)
  • ^FTAS

    +10.23 (+0.27%)

Bank of England cuts interest rate to 0.25% in coronavirus response

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·2-min read
Mark Carney, Governor of the Bank of England attends the Bank of England's Monetary Policy Report news conference in the City of London, Thursday Jan. 30, 2020. The Bank of England on Thursday opted against cutting interest rates after a run of fairly firm economic data in the past week eased fears about a dramatic slowdown in the British economy. (Jonathan Brady/Pool via AP)
Mark Carney, governor of the Bank of England. (Jonathan Brady/AP)

The Bank of England has announced emergency measures in response to the economic impact of novel coronavirus, including an unexpected interest rate cut.

The central bank said on Wednesday it would lower the interest rate by 50 basis points from 0.75% to 0.25%.

It’s the first time interest rates have been moved by 50 basis points since 2009 and take rates back down to a record low.

The pound slipped 0.3% against the euro (GBPEUR=X) and was flat against the dollar (GBPUSD=X) shortly after the surprise announcement.

Read more: Mark Carney: Coronavirus won't be as bad as 2008 financial crisis

The interest rate cut was agreed at an emergency meeting of the Bank’s Monetary Policy Committee held on Tuesday. It forms part of a “comprehensive and timely package of measures to help UK businesses and households bridge across the economic disruption that is likely to be associated with Covid-19,” the Bank said.

“These measures will help to keep firms in business and people in jobs and help prevent a temporary disruption from causing longer-lasting economic harm.”

Other measures announced include:

  • A new £100bn ($129bn) funding scheme aimed at maintaining bank and building society lending to small and medium-sized businesses.

  • Cutting the “counter cyclical buffer” for UK banks, which will unlock £190bn they can use to lend to people and businesses that need it.

  • A warning to banks not to increase dividends or bonuses in the face of the newly unlocked cash

The Bank said the core banking system was resilient and people should continue to rely on it for support.

The central bank is also “coordinating its actions with those of HM Treasury” for “maximum impact.” Chancellor Rishi Sunak is set to deliver his first budget later on Wednesday, with additional measures to combat Covid-19 expected to be announced.

“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 Bank of England said.

“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.”

Read more: UK Budget 2020 — What it means for your finances

Bank of America on Tuesday downgraded growth forecasts for the world due to the spread of coronavirus, which has led to lockdowns, travel bans, and office closures. Bank of America analysts said they now expect UK GDP to grow by just 0.3% in 2020.

The Bank of England said: “The Bank will take all further necessary steps to support the UK economy and financial system, consistent with its statutory responsibilities.”

The surprise announcement came as the number of confirmed Covid-19 cases in the UK climbed above 380. Health minister Nadine Dorries has also tested positive for the virus.