Strategy

U.K. Cuts Interest Rates in Response to Coronavirus

Policymakers reduced rates down to the lowest level in history to help cushion the impact of COVID-19.
Lauren MuskettMarch 12, 2020
U.K. Cuts Interest Rates in Response to Coronavirus

The Bank of England cut its main interest rate by half a percentage point to 0.25% on Wednesday, its lowest level on record, as part of the government’s response to the economic fallout of the coronavirus.

“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,” the bank said in a statement.

Meanwhile, U.K. Finance Minister Rishi Sunak announced £30 billion ($39 billion) in tax breaks and £12 billion ($15.5 billion) of coronavirus relief measures, pledging to do “whatever it takes” to protect the economy.

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“Policymakers are clearly concerned about the risks ahead,” Kallum Pickering, a senior economist at Berenberg Bank, said. “The joint action reflects the intention to send a big message that policymakers are prepared to take aggressive and preemptive steps to support the economy.”

The European Central Bank, which met Thursday in Frankfurt, announced measures to support bank lending by expanding its asset purchase program by 120 billion euros ($135.28 billion) but opted not to cut interest rates.

The bank’s main rate is -0.5%. A cut of ten basis points had been expected. European Central Bank President Christine Lagarde said the decision not to cut rates was unanimous.

Bank of England Governor Mark Carney said the U.K. could deploy more stimulus measures if needed. Carney’s tenure as governor ends March 15, when he will be replaced by Andrew Bailey.

The Bank of England has another meeting scheduled for later this month.

Last week, the Federal Reserve cut its main interest rate by half a percentage point, the first unscheduled, emergency rate cut since 2008.

Fed Chairman Jerome Powell said at the time that financial markets were functioning normally and the economy was performing well but the economic risk from the virus was real. “We saw the risk to the outlook to the economy and chose to act,” Powell said.