The Bank of England has announced an emergency cut in interest rates to shore up the economy amid the coronavirus outbreak. Interest rates were reduced from 0.75% to 0.25%, taking borrowing costs back down to the lowest level in history. The dramatic emergency rate cut will dominate the headlines, but it is the overall package of measures which the departing Bank of England governor Mark Carney will stress as a support for the economy in this extraordinary coronavirus crisis.

The Bank said it would also free up billions of pounds of extra lending power to help banks support firms. The Bank’s cut in interest rates takes rates lower than during the financial crisis and is the first unscheduled interest rate change since then. The move is coupled with support for businesses, with a new term funding scheme and relaxing bank credit rules to get more help to businesses, in an attempt to help small companies through the disruption, slower sales and potential shutdowns that may be caused by Coronavirus.
It comes as the chancellor is expected to announce further measures to support growth and jobs in the Budget later.

Chancellor Rishi Sunak has pledged to help the UK battle the impact of the coronavirus, saying the NHS will get “whatever resources it needs” during the crisis, while he is also expected to unveil measures to boost the self-employed and small businesses who are left out of pocket.
Speaking at the cabinet meeting ahead of the Budget, Mr Sunak said his plan would make the UK “one of the best placed economies in the world to manage the potential impact of the virus”.

Mortgage rates are already near record lows and its unlikely providers will be able to cut them much more – let alone pass on the entire rate cut. The exception is those on tracker rates, who will see a near-immediate effect on their monthly repayments. What’s more, savers who have already seen a swathe of cuts to the interest they get on their cash are likely to be hit further.

However, the potential cut to interest on debt could come at a crucial time for some. One in 8 adults have no savings at all and 45% of the population have less than £2,000 in cash – so if Coronavirus starts to hit people’s earnings we could see a big rise in the level of debt people have to take on just to pay the bills.

The key target of the package of measures to support businesses is the cash flow of small and medium-sized businesses, which could be hit by a combination of slumping demand, trade difficulties and staff absence.

“The shock to demand, output and disruption to supply chains [of coronavirus] is likely to be significant and the Bank of England has taken action to try to ensure that the blow to economic activity is shallow and short-lived. Much like the financial crisis, a coordinated global policy response across governments and central banks will be needed to limit the damage.” Richard Lim, Chief executive, Retail Economics.