Federal Reserve Chairman Jerome Powell explains why the coronavirus prompted the decision to make an emergency rate cut.
The Bank of England unexpectedly cut interest rates by half a percentage point to 0.25% on Wednesday in a move to bolster Britain’s economy against disruption caused by the coronavirus outbreak.
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“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,” the BoE said.
The cut was the first move to take place outside the BoE’s normal schedule since the 2008 financial crisis, and takes Bank Rate back to the record low it reached after 2016’s Brexit referendum.
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Finance minister Rishi Sunak is due to present his first budget shortly after 1230 GMT, which is expected to include more healthcare funding to fight the coronavirus, as well as further economic stimulus.
Sterling sank by more than half a cent against the U.S. dollar after the news of the first rate cut since August 2016.
FED MAKES EMERGENCY RATE CUT TO COMBAT CORONAVIRUS FALLOUT
Last week the U.S. Federal Reserve and the Bank of Canada lowered rates, and the European Central Bank is expected to take action on Thursday.
The BoE did not announce any new quantitative easing bond purchases, but did lower its counter-cyclical capital buffer for banks to zero from 1% and launch a new scheme to support lending to small businesses – both measures to keep borrowing flowing.
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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,” the BoE said. (Reporting by David Milliken and Kate Holton, editing by Estelle Shirbon/Guy Faulconbridge)
