Historic borrowing costs
Bank of England cuts interest rate to 0.1%; injects £200bn
More support from the Bank of England (pic: Terry Murden)
The Bank of England has cut the interest rate to 0.1%, its lowest ever. It is also injecting a further £200 billion into the economy.
At a special meeting today, the Monetary Policy Committee (MPC) unanimously voted to cut the rate from 0.25% to 0.1% and to increase holdings of UK government and corporate bonds.
Last week, the Bank announced a 0.5% cut from 0.75% and a package of measures to help businesses and individuals cope with the economic damage caused by the virus.
The decision marks a dramatic start for new governor Andrew Bailey who took over from Mark Carney on Monday.
It follows similar moves from the central banks around the world. The US Federal Reserve cut interest rates from 1.25% to 0.5% on Sunday, while the European Central Bank yesterday launched £700bn emergency funding package to help the economy through the crisis.
The FTSE 100 has responded positively to the Bank of England’s stimulus package. At 4pm the index was trading at 5,140.72, up 60.14 points (1.18%).
It’s the solutions of yesteryear when liquidity and credit were the problems– Kevin Dorran, AJ Bell
However, analysts were sceptical about using interest rates to fight the battle with coronavirus.
Kevin Doran, chief investment officer at AJ Bell, said: “Once again we’re seeing central bankers using the playbook from the last financial crisis. Overnight we saw the ECB roll out the QE cannons and, now in an effort to be seen doing ‘something’, the Bank of England have waded in with an emergency rate cut.
“It’s the solutions of yesteryear when liquidity and credit were the problems. This time it truly is different – with a workforce on lockdown, there’s a production chasm about to open up.
“To fill the gap policy makers need to be working with Governments to introduce formal debt relief. Not forbearance, not interest holidays, but genuine relief from servicing debts as the world enters its enforced hibernation.”
Tom Stevenson, investment director for Personal Investing at Fidelity International, said: “Britain is now a whisker away from the negative interest rate club. Rates have never been this low in the more than 300-year history of the Bank of England. Purchases of government and corporate bonds have been ramped up. A desperate measure for a desperate situation.
“Both governments and central banks have quickly acknowledged that we face a sharp downturn. The question now is whether the Bank’s assumption that the hit will be temporary is correct. It could be. The infrastructure of global supply remains in place and global demand should bounce back quickly once the outbreak passes.”
Chancellor holds business summit
The Chancellor this afternoon hosted a roundtable with representatives of business groups and the unions. In attendance were: Frances O’Grady (TUC), Carolyn Fairbairn (CBI), Adam Marshall (BCC) and Mike Cherry (FSB).
As outlined in the Chancellor’s statement of 17 March, urgent work is under way to announce further measures to support individuals facing financial difficulty as a result of the COVID-19 situation. Today’s meeting follows extensive discussions over the past two days.
The Government has already announced expansions in eligibility for welfare support and a hardship fund to support the most vulnerable, as well as support to businesses to help with cashflow and paying wage bills.
All participants agreed on the need to go further and to do so quickly, and on the need for all social partners and the Government to work together to find a workable and sustainable set of solutions that protect people’s jobs.
The TUC and business groups shared their assessment of the pressures facing workers, businesses and the self-employed, and their views on possible solutions, and the Chancellor outlined the Government’s approach.
Further details will be confirmed in the coming days.
… more follows