The Bank of England unexpectedly made an emergency cut to its interest rates by 50 basis points yesterday to bolster Britain’s economy as the coronavirus outbreak rattled markets globally and oil prices slumped.
The BoE’s monetary policy committee voted unanimously to reduce rates to 0.25 per cent from 0.75 per cent, the lowest rate since August 2016.
The shock move came as Britain's new Finance Minister
Rishi Sunak presented his first budget, which has included an extra £30 billion (Dh141bn) in healthcare funding to fight the coronavirus, which has wiped about $10 trillion (Dh3.67tn) from equity markets and killed more than 4,200 people around the world.
Mr Sunak pledged to spend £600bn by 2025 on a massive infrastructure programme, alongside measures to help businesses and the National Health Service weather the disruption from the disease.
"That means I am announcing today, in total, a £30bn fiscal stimulus to support British people, British jobs and British businesses through this moment," he said.
There are 382 confirmed cases of Covid-19 in the UK and on Tuesday, a sixth person died from the virus.
Mr Sunak warned that a fifth of the UK working population could be off work at any time and there could be an impact on the demand side of the economy, through a reduction in consumer spending
The BoE said: "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 regulator said it would also be freeing up an additional £190bn for banks to lend as part of a package of measures to "help UK businesses and households bridge across the economic disruption that is likely to be associated with Covid-19".
The outgoing BoE governor Mark Carney, said the economic effect of the outbreak would be only "temporary but
"These measures will help keep firms in business and people in jobs," Mr Carney said. "This is a big, big, package."
The pound slipped by more than half a cent against the US dollar after the announcement, which took traders by surprise according to Naeem Aslam, chief market analyst at Avatrade in London.
"A 50 bps interest rate cut is only a drop in an ocean especially when we compare the BoE's action with other central banks," he said.
"The current action is not enough to soften the blow at all and this is why it has not improved the FTSE 100 futures – which are trading lower by nearly 57 points."
The British interest rate cut follows similar moves by the US Federal Reserve and the Bank of Canada. Central banks in the Gulf states cut benchmark interest rates because of their currency's peg to the US dollar.
The European Central Bank is expected to slash rates on Thursday, according to Han Tan, Market Analyst at FXTM.
“The monetary policy outlooks for these major central banks are set to dictate the near-term performances of the respective currencies, as long as uncertainties surrounding the coronavirus outbreak continue to weigh on the global economy,” he said.