Economic boost

Bank cuts interest rate to counter coronavirus crisis

Bank of England

Bank of England: help for economy (pic: Terry Murden)

The Bank of England has announced an emergency cut in the interest rate in the face of coronavirus by 0.5% to 0.25% – the joint lowest in history.

The move comes just hours before Chancellor Rishi Sunak is expected to unveil a package of measures to support the economy.

In a statement, the Bank said: “Activity is likely to weaken materially in the United Kingdom over the coming months.

“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.”

However, some commentators will question the effectiveness of a rate cut with the cost of borrowing already at rock bottom. The cut is likely to be unwound once the crisis is over.

The Bank has admitted that when interest rates are low, it is likely to be difficult for some banks and building societies to reduce deposit rates much further, which in turn could limit their ability to cut their lending rates.

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