The Bank of England has this morning cut its main interest rate from 0.75% to 0.25% in a bid to help the British economy through the coronavirus shock.
The Bank said it had to help UK homs and businesses ahead of an expected economic shock “that could prove sharp and large, but should be temporary”.
As the UK braces for the impact of Covid-19, the bank said the cut was part of a "comprehensive and timely package of measures to help UK businesses and households bridge across the economic disruption that is likely to be associated with Covid-19."
It added: “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."
The rate cut was debated at a Monetrary Policy Committee meeting on Tuesday and the decision to cut it was unanimous.
The committee also approved a new term funding scheme with additional incentives for small and medium-sized enterprises (TFSME), financed by the issue of central bank reserves.
The bank said that as a result of the growing coronavirus outbreak “risky asset and commodity prices have fallen sharply and government bond yields reached all-time lows consistent with a marked deterioration in risk appetite and in the outlooks for global and UK growth.
“Indicators of financial market uncertainty have reached extreme levels. ”
It added: “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.
“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.
“Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy. ”
