UK Markets closed

Bank of England's Carney promises 'powerful and timely' coronavirus response

Mark Carney, the Governor of the Bank of England at the Tate Britain art gallery in London as the new 20-pound banknote enters into circulation on the 20th February 2020. (Photo by Steve Taylor / SOPA Images/Sipa USA)
Mark Carney, governor of the Bank of England. (Steve Taylor/SOPA Images/Sipa USA)

Bank of England governor Mark Carney said on Tuesday the central bank would take “all necessary steps to support the UK economy and financial system” in the face of the global coronavirus epidemic.

“The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large but will ultimately be temporary,” Carney told MPs on Tuesday.

“The bank will take all necessary steps to support the UK economy and financial system.”

Asked directly about the possibility of extending loans to banks, ramping up asset purchase programmes, or even cutting interest rates, Carney said: “We are considering a variety of policy options.”

Carney told MPs to expect a coordinated response to the COVID-19 epidemic, including both fiscal and monetary policy measures. He said action would be “powerful and timely.”

“We will act as appropriately,” Carney said.

‘Disruption not destruction’

The OECD warned on Monday that coronavirus and efforts to contain it are the biggest threat to the global economy since the 2008 financial crisis.

Carney said on Tuesday the epidemic would likely cause economic “disruption not destruction” in the UK, unlike the 2008 crisis.

The Bank of England is “monitoring the situation closely,” Carney said, “and ensuring all necessary contingency plans are in place.”

These include:

  • Looking at “market functioning” and “how to address any possible constraints to UK businesses and households financing that might emerge.”

  • Assessing UK banks contingency plans to make sure they can continue to function smoothly in the face of any UK outbreak.

  • Ensuring the payment systems remain operational and resilient.

  • Talking to the IMF, G7 nations, and the Treasury about coronavirus.

  • “Assessing the economic impacts and considering the policy implications of various possible scenarios,” namely on interest rates.

Carney said that, unlike in 2008, the financial system was “part of the solution not part of the problem.”

He said the Bank of England was considering allowing banks to use countercyclical capital buffers to support UK businesses.

“We don’t want viable businesses to go out of business because of the very necessary steps that need to be taken to protect and serve the British public,” Carney said.

“The effort needs to be first and foremost to figure out how to bridge from where we are today to the end of this process.”

Read more: Stocks jump ahead of emergency G7 coronavirus call

The pound was up 0.4% against the dollar to $1.2806 (GBPUSD=X) and up 0.3% against the euro (GBPEUR=X) to €1.1488 shortly after Carney’s comments. It had been trading higher against both pairings earlier in the session.

The. pound was trading higher as Carney was talking. Photo: Yahoo Finance UK
The. pound was trading higher as Carney was talking. Photo: Yahoo Finance UK

‘Powerful and timely’

The governor’s comments came in a statement read out at the start of a Treasury Select Committee evidence session on Tuesday morning.

The extraordinary statement came as international preparations for a possible coronavirus epidemic continue to ramp up. The UK government set out emergency contingency plans on Tuesday, as it warned as many as 1-in-5 workers could be absent from work in a worst-case scenario.

G7 finance ministers and central bankers will hold an emergency call around lunchtime to discuss a coordinated response. Stocks rallied ahead of the call amid hopes of action to prop up the global economy.

Read more: UK government: Coronavirus could leave one in five absent from work

“It is reasonable to expect a response that reflects a combination of fiscal measures and central bank initiatives,” Carney said.

“We’re confident that collectively these measures both within jurisdictions and across jurisdictions will be both powerful and timely.”

Carney said he was in close contact with the UK Treasury and “continued contact” with Andrew Bailey, who is set to succeed him as governor on 16 March.

While the total number of coronavirus cases worldwide remains low in absolute terms, efforts to contain its spread have had a knock-on effect on economic activity. Factory shutdowns in China have disrupted supply chains and slowed Chinese growth. Awareness of COVID-19 has also led to a steep decline in demand for tourism and luxury goods.