Interest rate cut as Bank of England responds to coronavirus crisis

A Budget day interest rate cut has been announced by the Bank of England alongside a new scheme to support additional borrowing by SMEs.

The Bank of England has launched its own response to the impact of coronavirus, with a “comprehensive and timely” package of measures as it seeks to innoculate the UK economy from the worst.

It has warned the country faces “an economic shock that could prove sharp and large”, albeit one that is temporary.

Chancellor Rishi Sunak preparing the 2020 Budget (Credit: Twitter / HM Treasury)

In a statement, the Bank of England 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.”

The announcement comes hours before Chancellor Rishi Sunak will deliver his first Budget, which is expected to focus on the Government’s own response to the coronavirus crisis.

At an emergency meeting, the Bank’s Monetary Policy Committee (MPC) unanimously agreed to reduce interest rates, by 50 basis points to 0.25%. It is the largest interest rate move for more than a decade and returns it to an all-time low only previously seen in the aftermath of the EU referendum.

A new funding scheme has been launched which it estimates could provide more than £100bn to businesses.

Over the next 12 months the scheme will offer four-year funding of at least 5% of participants’ stock of real economy lending at interest rates at, or very close to, the bank rate.

The Bank’s Financial Policy Committee (FPC) has also reduced the UK countercyclical capital buffer rate to 0% of banks’ exposures to UK borrowers – a move that will support up to £190bn of bank lending to businesses.

The Bank of England is confident the banking system is resilient enough for the expected disruption.

It said: “Such economic disruption should have less of an impact on the core banking system than recent stress tests run by the Bank have shown the system can withstand.”

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