The Bank of England on Wednesday slashed its main interest rate to 0.25 percent in an emergency move to combat the fallout from the coronavirus outbreak on the UK economy.
In a statement, the BoE said that at a meeting Tuesday, “the Monetary Policy Committee voted unanimously to reduce Bank Rate by 50 basis points to 0.25 percent”.
The reduction from 0.75 percent heads 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 central bank added.
The BoE’s biggest rate cut since the global financial crisis more than a decade ago comes ahead of the UK government’s first annual budget since Brexit, due at 1230 GMT, and which itself is set to be dominated by action over the coronavirus.
“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 in its statement.
“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 bank warned.
BoE policymakers, led by outgoing governor Mark Carney, also voted to allow retail banks in Britain provide cheap lending to businesses, aided by central bank reserves.
Andrew Bailey, head of Britain’s financial regulator, replaces Carney as governor of the Bank of England on March 16.
Sterling meanwhile fell sharply on the surprise BoE announcement, before quickly recovering some ground, notably against the dollar.
The London stock market opened up 2.1 percent, mirroring strong gains for other European indices, helped by a strong Wall Street performance overnight.
– Budget –
Finance minister Rishi Sunak presents the budget in parliament later Wednesday, after his predecessor Sajid Javid resigned unexpectedly last month.
It will be the country’s first annual budget statement since Britain departed the European Union on January 31.
“We’re looking at what the impact (of the virus) might be, whether it’s on businesses… on our public services, and in all cases, on Wednesday, you will hear from me the various options and policies that we can put in place to provide that vital support,” Chancellor of the Exchequer Sunak said at the weekend.
Sunak, 39, 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.
Sunak meanwhile has said that the budget would deliver also 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 will also confirm government plans to double funding for flood defences, 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 following 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 but only have until December 31, when a post-Brexit transition period ends, to nail down the details.