The Bank of England has cut UK interest rates back down to the lowest level in history to help mitigate the impact of the coronavirus outbreak on the economy.
The governor of the Bank of England, Mark Carney, announced the 50 basis point (0.5 percentage point) reduction, from 0.75% to 0.25%, in a bid to help boost consumer spending.
In addition, the Bank’s Monetary Policy Committee (MPC) revealed that it has voted unanimously to introduce a new Term Funding scheme with additional incentives for SMEs, financed by the issuance of central bank reserves.
It said from experience from the Term Funding Scheme launched back in 2016 that the new fund could provide in excess of £100bn in term funding.
The MPC also said it had voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10bn, and to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435bn.
The MPC said: “Although the disruption arising from Covid-19 could be sharp and large, it should be temporary. 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.
“Those stress tests demonstrated that banks would be able to continue to lend to businesses and households even while absorbing the effects of substantial, prolonged economic downturns in both the UK and the global economies, as well as falls in asset prices much larger than experienced in recent weeks.”
It added: “Given the resilience of the core banking system, businesses and households should be able to rely on banks to meet their need for credit to bridge through a period of economic disruption.”
At the time of the announcement at 7am this morning (11 March), the FTSE 100 rose by 1%, while the pound fell against both the euro and the dollar but has since rebounded.
The news comes as the chancellor of the Exchequer Rishi Sunak is expected to announce further measures in his maiden Budget later today.