Britain between the two fires, reducing the level of emergency and increasing the budget

The Bank of England slashed interest rates by half a percentage point on Wednesday and announced support for bank lending just hours before the unveiling of a budget splurge designed to stave off a recession triggered by the coronavirus outbreak.

In what amounts to a choreographed double-barrelled stimulus program, the BoE announced its unanimous emergency rate cut as London markets were opening and before Prime Minister Boris Johnson’s government sets out its spending plans after midday.

Mark Carney’s parting shot as governor, which returns the main interest rate to a record low of 0.25%, comes as COVID-19, the flu-like infection caused by the virus, spreads rapidly, stoking fears of global recession and roiling markets.

“The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large and sharp but should be temporary,” Carney told reporters after the first rate reduction since August 2016.

The cut follows a similar move from the U.S. Federal Reserve last week, and was the first such action to take place outside the British central bank’s normal schedule since the 2008 financial crisis. Bank Rate is now back to the record low it reached after 2016’s Brexit referendum.

“These measures will help keep firms in business and people in jobs and they will prevent a temporary disruption from causing longer-lasting economic harm,” Carney said alongside his successor Andrew Bailey.

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 briefly sank against the dollar by almost a cent on the news but recouped its losses and as of 0908 GMT traded at around $1.293, its level before the BoE cut rates. Yields on longer-dated British government bond yields rose sharply.

“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 Bank will take all further necessary steps to support the UK economy and financial system.”


The BoE did not announce any new quantitative easing bond purchases, but did lower its counter-cyclical capital buffer for banks to zero and launch a new scheme to support lending to small businesses — both measures to keep borrowing flowing.

The BoE said it would allow banks to release a special store of capital, known as the counter-cyclical capital buffer, so they can continue lending to households and businesses during the coronavirus epidemic. Tapping the buffer means that lending up to 190 billion pounds can be supported, equivalent to 13 times banks’ net lending last year./

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