The interest rate was cut to 0.1 percent today after previously being cut by 0.5 percent last week. The BoE said today covid-19 will result in an econmic shock which is “sharp and large”. The bank’s Monetary Policy Committee (MPC) voted unanimously in favour of the rate cut.
The BoE warned financial conditions in the UK and globally have “tightened” in recent days due to weaker market conditions.
In a statement, the central said: “Over recent days, and in common with a number of other advanced economy bond markets, 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.
“At its special meeting on 19 March, the MPC judged that a further package of measures was warranted to meet its statutory objectives.
“It therefore voted unanimously to increase the Bank of England’s holdings of UK government bonds and sterling non-financial investment-grade corporate bonds by £200 billion to a total of £645 billion, financed by the issuance of central bank reserves, and to reduce Bank Rate by 15 basis points to 0.1%.”
The BoE said after last week’s move: “Indicators of financial market uncertainty have reached extreme levels.
“Although the magnitude of the economic shock from Covid-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months.
“Temporary, but significant, disruptions to supply chains and weaker activity could challenge cash flows and increase demand for short-term credit from households and for working capital from companies.
“Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy.”
This is a breaking news story. More to follow…