In an unexpected move designed to shore up the UK economy against the effects of the coronavirus pandemic, the Bank of England slashed its key interest rate to 0.1%. Representing its lowest level since the central bank was founded in 1694.
The BoE also announced it will buy a further £200 billion-worth of gilts and UK corporate bonds. The aim is to help reduce the cost of borrowing and increase its current programme of quantitative easing (QE) to £645 billion.
An emergency 0.15% cut took place just days after policymakers implemented an earlier reduction of 0.5%. The BoE believes that “a further package of measures was warranted”, citing the risk of “an economic shock that could be sharp and large, but should be temporary”.
The BoE warned: “conditions in the UK gilt market have deteriorated as investors have sought shorter-dated instruments that are closer substitutes for highly liquid central bank reserves. As a consequence, UK and global financial conditions have tightened”. Andrew Bailey began his eight-year term as BoE Governor on 16 March, taking over from Mark Carney.
In response to the BoE’s unscheduled action, the British Chambers of Commerce (BCC) said the decision “reflects an increasingly dire near-term outlook for the UK economy”. It went on to warn that, although it might provide a short-term confidence boost for markets, it would have little effect unless it translates to practical support for businesses.
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