Bank of England cuts rates again and ramps up bond buying to combat coronavirus impact

Pedestrians walk past the Bank of England in the City of London, Britain June 28, 2016.

Paul Hackett | Getty Images

The Bank of England (BOE) cut interest rates to 0.1% and ratcheted up its bond-buying program Thursday, in an effort to offset the economic impact of the coronavirus outbreak.

At an emergency meeting, the central bank’s monetary policy committee voted unanimously to lower borrowing costs by 15 basis points and to increase the BOE’s bond-buying program to £645 billion ($752 billion), up £200 billion.

The BOE had previously cut rates to 0.25% from 0.75% on March 11.

It said the majority of additional asset purchases would comprise of U.K. government bonds and would be completed “as soon as is operationally possible.”

The move follows in the footsteps of several other central banks worldwide, with many taking bold steps to hike their stimulus measures in order to combat the coronavirus pandemic.

Sterling rose on the news, climbing almost 1.4% to reach $1.1770 Thursday afternoon. The U.K. currency had collapsed to a 35-year low Wednesday. 

‘Economic shock could be sharp and large’

“Over recent days, and in common with a number of other advanced economy bond markets, conditions in the U.K. gilt market have deteriorated as investors have sought shorter-dated instruments that are closer substitutes for highly liquid central bank reserves,” the BOE said.

“As a consequence, U.K. and global financial conditions have tightened,” it added.

To date, the U.K. has 2,644 cases of the coronavirus nationwide, according to data compiled by Johns Hopkins University. The U.K.’s National Health Service reported a further 29 people had died Thursday, taking the country’s death toll up to 128.

“The spread of Covid-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but should be temporary,” the bank said in a statement.

The next regularly scheduled BOE meeting will take place on March 26, with the minutes set to be published the following day.

Schools to close

On Tuesday, the U.K.’s finance minister announced a £330 billion ($398 billion) aid package of loans for businesses, as well as a business rates holiday and grants.

Finance Minister Rishi Sunak said the government would “support jobs … support incomes and we will support businesses … we will do whatever it takes,” he said.

Prime Minister Boris Johnson has since announced schools in England will shut from Friday.

Speaking at the government’s daily press conference Wednesday, Johnson said: “They will remain closed for the vast majority of pupils until further notice.”

Wales, Northern Ireland and Scotland will also close their schools from Friday. All schools and colleges in the Republic of Ireland have been closed, too.

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