UK announces historic cut in interest rate to combat coronavirus threat

• The Bank of England announced to reduce Bank Rate by 50 basis points from 0.75pc to 0.25pc, which is the lowest in the bank’s historic.
• The bank said that the reduction in interest rate will help to support business and consumer confidence at a difficult time.

The United Kingdom’s Bank of England has announced an emergency cut in interest rates in response to the economic shock from the outbreak of novel coronavirus COVID-19.

The central bank Monetary Policy Committee (MPC) on Wednesday announced to reduce Bank Rate by 50 basis points from 0.75pc to 0.25pc, which is the lowest in the bank’s historic.

“Following the spread of Covid-19, risky asset and commodity prices have fallen sharply, and government bond yields reached all-time lows, consistent with a marked deterioration in risk appetite and in the outlooks for global and UK growth. Indicators of financial market uncertainty have reached extreme levels,” stated the Bank of England in a statement.

“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. 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. Such issues are likely to be most acute for smaller businesses.  This economic shock will affect both demand and supply in the economy,” the UK’s central bank added.

The bank said that the reduction in interest rate will help to support business and consumer confidence at a difficult time, “to bolster the cash flows of businesses and households, and to reduce the cost, and to improve the availability, of finance.”

The Bank of England further said it would also relax capital rules to free up billions of pounds of extra lending power. “Additional funding will be available for banks that increase lending, especially to small and medium-sized enterprises (SMEs).”