The Bank of England has cut interest rates in an emergency move to bolster the economy during the coronavirus outbreak. The monetary policy committee voted unanimously to slash the bank rate from 0.75% to 0.25% at its first unscheduled meeting since the depths of the 2008 financial crisis as part of a coordinated package of measures alongside Chancellor Rishi Sunak’s budget.
Investors initially welcomed the move, which went beyond expectations of a 0.25-point cut, with the FTSE 100 rising 2% when markets opened. However, renewed coronavirus fears saw the index close down 83 points, or 1.4%, at a new four-year low of 5,876. Wall Street also suffered heavy losses as the World Health Organization declared a coronavirus pandemic, with the Dow Jones closing down 1,464 points or 5.8%.
The rate cut came as official figures showed UK GDP growth flatlined in January before the virus hit Europe. The Office for National Statistics reported a 1.2% drop in manufacturing output in the three months to January, pulling growth to zero. Outgoing Bank governor Mark Carney described the package as “a big deal”, adding that the Bank still had room to unleash further stimulus, though negative interest rates were ruled out.
Alongside the headline cut, the Bank introduced a term funding scheme with additional incentives for small and medium businesses, designed to encourage cheap loans. The scheme could provide in excess of £100bn in funding. HSBC announced it would allow UK families and companies to defer mortgage and business loan payments if required.
Adam Marshall of the British Chambers of Commerce called the move “decisive” and an important cut in borrowing costs for businesses “at this delicate moment”.
