Bank of England reduce bank rate by 50 basis points to 0.25%
Wednesday 11 March, 2020
On 10th March 2020, the Monetary Policy Committee (MPC) voted unanimously to reduce Bank Rate to 0.25%, a reduction of 50 basis points to respond to the economic shock of Covid-19. This takes bank interest rates back down to their lowest level in history.
The Bank of England also introduced a package of measures to support UK businesses and UK households from the economic disruption caused by Covid-19. These measures are intended to support UK businesses and jobs. The MPC has acted to prevent any temporary disruption caused by the Coronavirus from having a longer-term negative impact on the economy.
How has Covid-19 impacted the markets?
Government bond yields have reached all-time lows, commodity prices including oil has fallen sharply, equity markets values are lower, and indicators of financial market uncertainty are at extreme levels. According to the Bank of England this is: ‘consistent with a marked deterioration in risk appetite and in the outlooks for global and UK growth.’
What effect will Covid-19 have on the UK economy?
It is still uncertain what effect Covid-19 will have on the economy. The Bank of England believes that activity is likely to ‘weaken materially’ over the next few months. Weaker economic activity could particularly effect smaller companies in terms of their cash flow and working capital requirements. There may also be an increased demand for short-term credit by households.
Bank of England introduce a new Term Funding scheme
According to the Bank of England’s website: ‘The MPC voted unanimously for the Bank of England to introduce a new Term Funding scheme with additional incentives for Small and Medium-sized Enterprises (TFSME), financed by the issuance of central bank reserves. The MPC voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.’
Vishal Gulrajani Financial Adviser in North London, Cheshunt, Hertford & Hertfordshire said:
‘It is the Bank of England’s role to support UK businesses and households so they can manage the economic impact of Covid-19 which we hope will be temporary. The 0.5% reduction in the Bank Rate is a decisive move by the Bank of England MPC and will help support consumer confidence and provide businesses with access to finance and reduce their costs at this uncertain time.’
Vishal Gulrajani Financial Adviser in North London, Cheshunt, Hertford & Hertfordshire continued:
‘Equity markets are currently volatile because of the Covid-19 impact. Earlier this week many world markets experienced their largest one day falls since the financial crisis, because of the threat of an oil price war and the coronavirus-driven recession fears. Our clients are understandably concerned about the current equity market volatility but whenever we offer financial advice, we always recommend clients invest their money on a long-term time horizon, normally five years, and prepare clients for setbacks.’
Please note: The value of investments can fall as well as rise. You may not get back what you invest.