The Bank of England has cut interest rates to an all-time low of 0.1% and increased its quantitative easing stimulus package following a panic in financial markets over the handling of the coronavirus outbreak.
The Bank made the decision at a special meeting of the monetary policy committee on Thursday. It will also buy an additional £200bn of UK government and corporate bonds under a QE money-printing programme, designed to hold down the cost of borrowing and pump cash into the economy.
The Monetary Policy Committee at a special meeting on 19 March voted to cut Bank rate to 0.1% and increase its holdings of UK government and corporate bonds by £200 billion. https://t.co/rbpUGU0blr
— Bank of England (@bankofengland) March 19, 2020
It comes a week after the Bank cut rates from 0.75% to 0.25% to address the mounting coronavirus crisis.
The Bank of England governor, Andrew Bailey, said the central bank moved quickly to calm markets spooked by rumours that London would be forced into complete lockdown with a few days.
“You could see that reflected in the rising value of the dollar, in bond yields and in bond spreads,” he said.
“The obvious increase in the pace and severity of Covid-19, which has built during the week, was something we had to assess and respond to, we can’t wait for the hard economic data before we act,” he added.
Bailey said he would use the extra £200bn of QE funding to act in the markets promptly, adding that all central banks were moving in the same direction. “I talk to central bank governors most days and while we make decisions with reference to our own mandates, it is not a surprise that we all are coming to the same conclusion [over what to do]”.
Central bank officials are known to be nervous about a collapse in business and consumer confidence after a spike in the number of virus cases and deaths.
Speculation that ministers are close to announcing further spending commitments to underwrite workers’ incomes, with vast extra borrowing needed to fund it, is also believed to be behind the move.
The pound rose in value after the announcement, having endured its fifth worst day of the century against the US dollar on Wednesday.
The move follows the creation of a €750bn (£637bn) emergency fund by the European Central Bank to extend its bond buying programme, supporting indebted companies in the eurozone.
Karen Ward, a senior analyst at JP Morgan Asset Management, and a former Treasury adviser, said: “It is the additional quantitative easing in today’s Bank of England package that will have the most significant impact, both in terms of the market reaction but also a solution to the economic challenges presented by Covid-19.
Ward added: “The support to the economy and health system will require vastly higher government borrowing. The central bank showing willing to buy government debt will ensure the market can absorb this additional issuance without undue stress.”