Bank of England governor Mark Carney has said that Threadneedle Street is coordinating with the Treasury to make sure British households and businesses are protected from the economic fallout from coronavirus.
Carney, who will be replaced by Andrew Bailey as governor on 16 March, refused to be drawn on whether the Bank would carry out an emergency rate cut as the US Federal Reserve did on Tuesday.
He said the Bank’s monetary policy committee (MPC) “is assessing the economic impacts and considering the policy implications of various possible scenarios”.
“We are also coordinating with the Treasury to ensure that any initiatives are complementary and that they will collectively have maximum impact, consistent with our independent responsibilities,” he said at University College London in his last public appearance as governor.
He repeated his warning from earlier this week that coronavirus would cause an “economic shock that could prove large but will ultimately be temporary”.
Carney’s speech came a day after Bailey told MPs that the BoE and government are likely to provide loans to small and medium-sized firms to help them deal with supply chain disruptions from the coronavirus outbreak.
Together, Carney and Bailey’s words raise the prospect that a package of financial support for UK firms could be revealed in the 11 March Budget.
The government had hoped the first financial set piece of the new parliament would focus on its agenda to “level up” spending – particularly on infrastructure – around the country.
But it has already been overshadowed by coronavirus, which has now infected 115 people in the UK and taken one life.
Carney said the Bank is monitoring “the extent to which supply disruptions have aggregate demand consequences via cash flow, cost and availability of finance, as well as confidence effects”.
Traders now think it certain that the Bank will cut interest rates at its next meeting. According to CME Group’s BoEwatch tool, they think there is a 35 per cent chance a deep 50 basis point (0.5 percentage point) cut.
Threadneedle Street still has plenty of “ammunition,” Carney said. “Our policy arsenal includes monetary policy instruments, special liquidity facilities, and macroprudential tools.”
“We have a wide range of tools, we’ll deploy them as appropriate, when appropriate and we have exceptionally good line of sight to what our colleagues around the world are doing,” Carney said.