Bank of England slashes rates to historic low amid coronavirus pandemic
The Bank of England has slashed interest rates to a new record low and will pump £200bn into the economy through its quantitative easing (QE) bond-buying programme as it seeks to curb the effects of the coronavirus pandemic.
The Bank today held an emergency meeting and cut its main rate by 15 basis (0.15 percentage points) to 0.1 per cent, the lowest level since the BoE was founded in 1694.
It was the second time in just over a week the Bank has slashed rates in an emergency move. On 11 March it cut the main rate to 0.25 per cent and announced a scheme to provide banks with ultra-cheap loans to pass on to small and medium-sized businesses.
The rate cut was only the fourth emergency move in history, governor Andrew Bailey said on a conference call after the decision. He said it was important the Bank acted before its scheduled meeting next week because “it will be too late by that point”.
Threadneedle Street also said it will buy up to £200bn of UK government and corporate bonds through its QE programme, under which it creates digital money to purchase debt.
The move came as central banks and governments around the world scramble to respond to the coronavirus slowdown. As people self-quarantine and businesses close, the UK and global economies are all but certain to be heading for a deep recession.
This new iteration of QE is mainly designed to reduce stress in bond markets. Bailey said UK gilts were coming under stress as “we were seeing quite substantial movements out of some markets, we were seeing substantial movement into cash, actually a substantial movement worldwide into dollars”.
Bailey said if the Bank had not acted, “we would have seen quite disorderly movements” in markets.
The Bank of England’s asset purchases, which will take its stock of bonds up to £645bn, will pump money into the market and ease some of the liquidity pressure on investors.
The MPC said: “The majority of additional asset purchases will comprise UK government bonds. The purchases announced today will be completed as soon as is operationally possible, consistent with improved market functioning.”
Threadneedle Street will also enlarge the so-called term funding scheme launched last week under which it lends money cheaply to banks for them to pass on to small and medium-sized businesses.
The move from the BoE followed a swathe of rate cuts from central banks around the world. Today, the central banks of Australia, Indonesia, Taiwan and the Philippines all lowered rates.
It also came hot on the heels of the European Central Bank’s (ECB) move to ramp up its QE programme by €750bn (£700bn).