The interest rate was cut to 0.1 percent today after previously being cut by 0.5 percent last week. The BoE said today covid-19 will result in an econmic shock which is “sharp and large”. The bank’s Monetary Policy Committee (MPC) voted unanimously in favour of the rate cut.
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The BoE warned financial conditions in the UK and globally have “tightened” in recent days due to weaker market conditions.
In a statement, the central bank said: “Over recent days, and in common with a number of other advanced economy bond markets, conditions in the UK gilt market have deteriorated as investors have sought shorter-dated instruments that are closer substitutes for highly liquid central bank reserves.
“At its special meeting on 19 March, the MPC judged that a further package of measures was warranted to meet its statutory objectives.
The Bank of England has cut interest rates to 0.1% (Image: GETTY)
The Bank of England has been reckoning with the outbreak of covid-19 (Image: Getty)
“It therefore voted unanimously to increase the Bank of England’s holdings of UK government bonds and sterling non-financial investment-grade corporate bonds by £200 billion to a total of £645 billion, financed by the issuance of central bank reserves, and to reduce Bank Rate by 15 basis points to 0.1%.”
The BoE said after last week’s move: “Indicators of financial market uncertainty have reached extreme levels.
“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.
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The BOE said activity is likely to weaken materially in the coming months (Image: Getty)
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“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.
“Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy.”
The emergency measures have come just a week before the Monetary Policy Committee’s scheduled meeting on March 25.
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The economic shock will affect both demand and supply in the economy (Image: Getty)
The markets have taken a tumble because of the outbreak (Image: Getty)
The action comes as one of the first tasks of new Bank of England govenor, Andrew Bailey.
Mr Bailey has been thrown in at the deep end in his first days on the job, and now has to negotiate the new interest rates set by the central bank.
However, fortunately, Mr Bailey has experience in similar matters.
He worked as part of a team central to preventing a banking system meltdown in the global financial crisis twelve years ago, and later played a central role in responding on behalf of the UK to the Greek debt crisis.
The Chancellor, also newly appointed, Rishi Sunak, has said the Government is prepared to take “whatever action is necessary” during the crisis.
He has pledged millions towards helping struggling businesses affected by the pandemic.
Andrew Bailey and Rishi Sunak will work side by side on the issue (Image: Getty)
The central bank has also announced it will put forward another £200 billion in bond buying under the quantative easing programme.
It will also extend the term funding scheme – encouraging banks to pay forward the benefits of interest rate cuts to people and businesses.
0.1 percent is the lowest base rate in the Bank’s history.