MARK Carney admitted the Bank of England’s anti-coronavirus firepower was limited because interest rates are already so low.
Speaking after the Bank and its peers in the US, Japan and Australia signalled they would take coordinated action to ease market panics over the virus, the outgoing governor said: “Monetary policy space is limited.”
He said the Bank was unlikely to cut the cost of borrowing to negative interest rate, but other moves such as asset purchases were possible. Markets across Europe rallied for the second day running after Wall Street enjoyed a near 5% bump last night and European markets responded, aided by a sharp cut in interest rates from the central bank of Australia to 0.5%.
The Bank of Japan threw cash into the financial system and pledged to buy assets directly to maintain stability.
President Trump upped his usual pressure on the Fed, tweeting it should “ease and cut rate big”. In London there was a clear shift in sentiment from fear of a complete wipeout to greed at missing out on a prolonged rally.
The FTSE 100 was up nearly 150 points, 2.2%, at 6802. Winning shares included a bounce for the airlines — TUI up 4%, IAG up 4% —and homebuilders Persimmon, up 4.6% and Taylor Wimpey, 4.5%.
Peter Cruddas at CMC Markets, unveiling his firm’s third profit upgrade for the year, said his plan to target higher-value clients was working. While increased volatility has been good for business, that turbulence has lately left clients unsure. Some analysts cautioned that co-ordinated activity by the central banks, as in 2008, is unlikely because the China flu isn’t yet a worldwide financial panic.
The latest IHS Markit PMI Construction figures for February recorded the sharpest rise in new orders since December 2015. At 52.6, the index soared from 48.4 in January.
Duncan Brock at the Chartered Institute of Procurement & Supply said: “After a sustained period of contraction in construction last year, the resurgence in levels of new work at the fastest rate since December 2015 was a surprising but much-needed development for a sector that was on its knees.” That suggests a recession is not presently on the cards.
Fidelity International analyst Anna Stupnytska said: “The good news is that, unlike natural disasters such as floods and earthquakes, capacity should bounce back once things return to normal.”
