In a bid to shore up the economy the Bank of England has cut interest rates back to their lowest ever level, 0.25% from 0.75%.
The MPC (Monetary Policy Committee) voted unanimously to slash the bank rate at an unscheduled meeting, which ended yesterday.
The rate cut is part of a ‘package of measures to help UK businesses and households bridge across the economic disruption that is likely to be associated with Covid-19’, the BoE said.
‘These measures will help to keep firms in business and people in jobs and help prevent a temporary disruption from causing longer-lasting economic harm.’
There has also been a move to help banks supply credit ‘needed to bridge a potentially challenging period’. The Financial Policy Committee has reduced the UK countercyclical capital buffer rate to 0% of banks’ exposures to UK borrowers with immediate effect. The rate had been 1% and had been due to reach 2% by December 2020.
It said: ‘The release of the countercyclical capital buffer will support up to £190 billion of bank lending to businesses. That is equivalent to 13 times banks’ net lending to businesses in 2019. Together with the TFSME, this means that banks should not face obstacles to supplying credit to the UK economy and to meeting the needs of businesses and households through temporary disruption.’
A ‘Term Funding scheme’ will also be introduced with ‘additional incentives for SMEs, financed by the issuance of central bank reserves’.
On Monday markets took a battering with the FTSE closing 7.7% lower, falling below the 6,000 mark for the first time in three years. Yesterday the index closed at 5,960, having rallied as high as 6,228 in the morning’s trading.
The Bank of England cut the base rate from 0.5% to 0.25% in the wake of the 2016 Brexit vote. The Bank pushed the rate back up to 0.5% in November 2017, and indicated there would be further rises in the near future. The first happened in August 2018 when the rate rose to 0.75% under a unanimous vote by the Bank’s Monetary Policy Committee.
By W Robins (Citywire)