Bank of England Surprises With Interest Rate Cut

The Bank of England unexpectedly slashed interest rates by 50BPS, taking them down to 0.25% from 0.75%. It was very much a shock move to cushion the British economy against disruption caused by the coronavirus outbreak.

Several central banks globally have now been acting in a similar fashion, so this does not come as too much of a surprise. Across the pond, both the FOMC and the Bank of Canada cut rates by 50BPS.

The action from the BoE is a cut for the first time since August 2016, they 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.”

Allied with the rate cut, The BoE also introduced a new term funding scheme for small businesses. It will offer four-year funding over the next 12 months. In addition, they informed banks that they can tap one of their capital buffers to maintain lending during the coronavirus epidemic.

It is a move to encourage continued lending, so that consumers borrow and thus spend, helping maintain some stimulation into the economy. Many central banks are anticipating a slowdown, given the global spread of Coronavirus.

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