LONDON (AFP) — The Bank of England slashed its interest rate to a record low 0.25% on Wednesday as part of coordinated emergency action with the U.K. government to combat the economic fallout from the coronavirus outbreak.
The BoE said that at an extraordinary meeting on Tuesday “the Monetary Policy Committee voted unanimously to reduce Bank Rate by 50 basis points to 0.25%” — its biggest cut since the global financial crisis more than a decade ago.
The reduction from 0.75% headed a “package of measures to help U.K. businesses and households bridge across the economic disruption that is likely to be associated with COVID-19,” the central bank said in a statement.
The Bank of England “will take all necessary further steps to support the U.K. economy and financial system” from the coronavirus fallout, governor Mark Carney told a press conference before finance minister Rishi Sunak’s post-Brexit budget statement to parliament.
“The bank is coordinating its actions with those that the chancellor (of the exchequer Sunak) will announce later today,” the BoE said.
Carney said the British central bank would continue to coordinate closely with international counterparts.
“Mark Carney has eased one final time before he leaves the BoE,” said Joshua Mahony, senior market analyst at IG trading group.
Andrew Bailey, head of Britain’s financial regulator, replaces Carney as governor on March 16.
“The euro is coming under pressure, as the focus turns to the ECB [European Central Bank]” following rate cuts by other major central bank, notably the U.S. Federal Reserve, triggered by the virus.
The BoE said that “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.”
Looking ahead, “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,” it added, shortly before official data showed Britain’s economy flatlined in January.
“Such (supply) issues are likely to be most acute for smaller businesses,” the bank warned.
BoE policymakers, led by Carney, voted also at Tuesday’s meeting to allow retail banks in Britain to provide cheap lending to businesses, aided by central bank reserves.
Sunak, 39, presents the budget in parliament after his predecessor Sajid Javid resigned unexpectedly in February.
It will be the country’s first annual budget statement since Britain departed the European Union on Jan. 31.
Sunak said he was ready to give the state-run National Health Service whatever it needed to help combat the coronavirus outbreak.
On Tuesday, it was revealed that a minister in the health department, Nadine Dorries, had tested positive for COVID-19.
Six people have died in Britain from the virus, with more than 370 confirmed cases.
Sunak has said that the budget would deliver on the promises made by Prime Minister Boris Johnson in the run-up to the December general election.
Johnson’s Conservatives vowed to boost productivity in areas outside London through investment in public services, broadband and transport projects such as the new high-speed railway HS2.
Sunak’s budget also will confirm government plans to double funding for flood defenses, to £5.2 billion ($6.8 billion, 5.9 billion euros), after recent major storms destroyed homes and businesses, particularly in northern England and Wales.
Sunak, who had been Javid’s deputy, was promoted when his boss quit rather than accept Johnson’s demand to sack all his political advisers.
The prime minister wants greater say over Treasury policy after his election victory that ended more than three years of political wrangling over Brexit and allowed Britain to finally quit the EU less than six weeks ago.
To date, the divorce has resulted in more than £4.0 billion in extra government spending.
Britain and the EU have begun negotiations on a new trade deal and have until Dec. 31, when a post-Brexit transition period ends, to nail down the details.
© Agence France-Presse