The Bank of England (BoE) announced a surprise cut in rates to 0.25% on Wednesday to help the British economy face the “shock” of the coronavirus epidemic, a decision that comes a few hours before the presentation of the budget by the government.
The institution said in a press release, having decided, after an emergency meeting, a drastic drop in its rates from 0.75% to 0.25%.
This drop is the largest since the start of 2009, in the midst of an international financial crisis. Yields have not been as low in the months since the Brexit vote.
The BoE will also encourage banks to lend to businesses and households, saying that “activity is likely to weaken significantly in the UK in the coming months”.
This is probably the last decision made under the aegis of Governor Mark Carney who leaves his post over the weekend to make room for Andrew Bailey.
The BoE follows in the footsteps of the Federal Reserve (Fed) which already announced last week a rate cut without waiting for its regular meeting, in order to support activity and to reassure markets panicked by the advance of the epidemic of coronavirus.
The ECB’s turn?
The European Central Bank (ECB) is due to unveil its system on Thursday after its meeting.
BoE expects release “economic shock which could be sharp and significant but should be temporary”, explaining that SMEs will be particularly affected, both by disruptions in supply chains and by lower demand.
These spectacular measures are announced by the BoE a few hours before the presentation by the British government of its first post-Brexit budget.
Finance Minister Rishi Sunak, who has been in office for a month, is scheduled to speak at 12:30 GMT in Parliament and is expected to unveil billions of pounds of additional spending to support the economy.