The Bank of England has cut its key interest rate by half a percentage point to 0.25%, as an emergency measure in response to the outbreak of the COVID-19 virus
The Bank of England slashed its key interest rate by half a percentage to 0.25% on Wednesday, in an emergency response to the “economic shock” of the coronavirus outbreak.
The central bank said in a statement that the move, which was supported by all nine members of the Monetary Policy Committee, would “help support businesses and consumer confidence at a difficult time.”
The cut, which takes the main rate to the record low it stood in the aftermath of Britain’s vote in June 2016 to leave the European Union, comes just hours before the British government is expected to announce its own package of measures to shore up the economy in the face of arguably the biggest economic shock since the global financial crisis 12 years ago.
The cut follows similar reductions from the U.S. Federal Reserve and the Bank of Canada. The European Central Bank is also expected to announce a package of stimulus measures on Thursday.
In contrast to Italy, the epicenter of Europe’s outbreak with 10,100 cases, Britain has only 373 confirmed cases of COVID-19 and six deaths. But the impact of the outbreak has already slammed European airlines, airports and travel-related businesses, as air passenger numbers sink rapidly and travelers avoid cruise ships. Many businesses in the U.K. depend on tourism.
The Bank of England said the effect of the new coronavirus on the British economy could be significant, with activity likely to “weaken materially” in the coming months. Growth projections have been slashed for all major economies around the world as the virus halts production and dents business and consumer confidence.
“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,” the bank said.
“Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy.”
In addition to the rate cut, the bank announced a package of measures that it hopes will keep money flowing through the economy. It announced a new funding scheme that will focus particularly on small and medium-sized firms and also slashed to zero from 1% the amount of capital that banks have to keep in reserve, a move that is designed to bolster lending.
It said its proposals were a ” comprehensive and timely package of measures to help U.K. businesses and households bridge across the economic disruption that is likely to be associated with COVID-19.”
“These measures will help to keep firms in business and people in jobs and help prevent a temporary disruption from causing longer-lasting economic harm,” it said.
Treasury chief Rishi Sunak is considering measures to stimulate an economy already weighed down by uncertainty over Britain’s future trade relationship with the EU.
Business groups have urged Sunak to let firms defer tax payments and to back emergency loans for struggling enterprises. Unions have sought guarantees that self-employed and contract workers will get sick pay if they have to stay home.
The virus is hitting closer to the heart of the British government. On Tuesday, Nadine Dorries, a minister in the Department of Health, said she is self-isolating as she recovers from the virus.
The Times of London reported that Dorries first showed symptoms on Friday and had since worked in Parliament, held meetings with constituents and attended an International Women’s Day reception with British Prime Minister Boris Johnson.
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