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12 March 2020

BOE cuts rates in coordination with treasury Covid-19 response

The European Central Bank is also expected to join the easing this week after President Christine Lagarde warned leaders that the crisis has echoes of 2008

Policy makers delivered a half-point reduction to take their key rate to 0.25 per cent/Bloomberg

by Bloomberg

The Bank of England (BOE) has unveiled stimulus including its first emergency interest-rate cut since the financial crisis, a move coordinated with the government’s fiscal response to prevent the coronavirus outbreak from crippling Britain’s economy.

Policy makers delivered a half-point reduction to take their key rate to 0.25 per cent, introduced a new programme to provide easy and cheap credit and reduced a special capital buffer to give banks even more room to lend.

Governor Mark Carney said the coronavirus effect should be short-lived but he and his successor, Andrew Bailey, made clear that the BOE has space if it needs to do even more.

Carney said that these measures will help keep firms in business and people in jobs, and they will prevent a temporary economic disruption from causing long-term harm, adding that this is a big package.

What may appeal to investors is that the BOE not only delivered a large rate cut like the US Federal Reserve, but also targeted aid to businesses and banks which could feel fallout from a drop in demand because of the virus.

The UK response also stands out with the level of coordination between the central bank and the government—a synchronisation which may serve as a model for other economies.

Chancellor of the Exchequer Rishi Sunak announced GBP 30 billion ($34 billion) of fiscal stimulus and pledged to spend GBP 600 billion by 2025 on a massive infrastructure programme, alongside measures to help businesses and the National Health Service weather the disruption from the disease.


RELATED STORIES: US Federal Reserve President Christine Lagarde Bank of England coronavirus





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