The Bank of England has taken drastic action in response to the escalating coronavirus crisis, slashing interest rates to a record low of 0.1% in an emergency move. This marks the second rate cut in just over a week, as policymakers scramble to cushion the economic blow from the pandemic.
Why the Sudden Rate Cut?
With businesses shutting down, stock markets in freefall, and unemployment claims soaring, the Bank's Monetary Policy Committee (MPC) voted unanimously to reduce rates from 0.25% to 0.1%—the lowest in its 325-year history. The decision comes alongside a massive £200 billion expansion of its quantitative easing programme.
What Does This Mean for You?
- Savers: Returns on savings accounts will shrink further, hitting those reliant on interest income.
- Borrowers: Mortgage holders on tracker or variable rates could see immediate reductions in payments.
- Businesses: Cheaper borrowing costs aim to keep firms afloat during the downturn.
Governor Andrew Bailey warned that the economic impact of COVID-19 could be "sharp and large", justifying the unprecedented measures.
Market Reactions and Future Steps
The pound dipped slightly against the dollar following the announcement, while the FTSE 100 remained volatile. Analysts suggest the Bank may resort to negative interest rates if the crisis deepens.
Chancellor Rishi Sunak is expected to unveil further fiscal support later this week, as the government and central bank work in tandem to stabilise the economy.
