Bank of England makes unexpected 0.5% bank rate cut
The Bank of England’s Monetary Policy Committee have today made the unscheduled decision to cut the base rate by 0.5%.
The decision, which falls outside of their normal announcement schedule and was made unanimously by the committee, has been made in response to the economic threat of Covid-19.
The move is one of three measures taken by the Bank’s policy committes during special meetings to mitigate the economic harm caused by the virus, which also include providing a boost to funding for SMEs and reducing the capital buffer banks are required to maintain.
Despite the measures put in place, the Bank says it remains confident that the UK economy can withstand the economic pressures of Covid-19, and notes that the current situation ‘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’.
The Bank said:
“The Bank’s three policy committees are today announcing a comprehensive and timely package of measures to help UK businesses and households bridge across the economic disruption that is likely to be associated with Covid-19.
“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 financial services industry responded positively to the move, with Anna Stupnytska, Head of Global Macro, Fidelity International commenting:
“This is a decisive move by policymakers who are scrambling to address the potentially wide-ranging fallout on the economy as the virus continues to spread rapidly.”
However, some have expressed concerns that the measures announced won’t have enough of an impact, with Adrian Lowcock, head of personal investing at Willis Owen, adding:
“The idea is that lower interest rates should encourage spending as it costs less to borrow, while the Bank has also said it will relax capital rules for businesses, mimicking moves from other central banks including the Federal Reserve.
“However, there are a number of reasons why this is unlikely to have much impact on consumer spending. With rates already low the difference is minimal and most mortgages are fixed rate so are not affected.
“More importantly, the coronavirus has initially hit supply chains and interest rate cuts will not change that. Likewise demand is being impacted because people are not going out and spending as much because they can’t, not because they don’t have enough money.
“If your saver or looking to get an annuity then the cut is bad news. If you are on a variable mortgage then it is good news. The real beneficiary could be the government as the cost of borrowing is virtually free.”
Source: Financial Reporter