Coronavirus: UK interest rates slashed in emergency move

The Bank of England has cut interest rates, warning the coronavirus pandemic will result in a “sharp and large” shock.

In a bid to support the UK economy in the face of the outbreak, the Bank made its second interest rates cut in a little over a week, bringing them down to 0.1% from 0.25%.

The coronavirus pandemic has “truly moved UK economic policy into uncharted territory with that emergency rate cut,” The Guardian reports.

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Meanwhile, Faisal Islam, economics editor of the BBC, says monetary policy “remains a blunt tool to deal with a pandemic and its economic fallout”, but adds that the move creates “some space” for “much more action on tax and spend... to deal with the enormous economic hit from the virus”.

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The Bank said the measures announced earlier this week by Chancellor Rishi Sunak were not going to be enough to protect the economy, adding that “a further package of measures was warranted”.

Jeremy Thomson-Cook, chief economist at payments company Equals Group, says that with the interest rate cut, the Bank of England is effectively saying “your move” to the Treasury.

“The base rate is now at the lowest level we think the Bank of England is prepared to go to and with that will come a not so unsubtle hand-off of the stimulus baton to the Treasury,” he says.

Unless money is “forced into the hands of small businesses soon then it will be for nothing; they are the ones laying off staff due to a liquidity shock,” Thomson-Cook adds.

Tom Stevenson, investment director for personal investing at Fidelity International, said: “Britain is now a whisker away from the negative interest rate club.”

The emergency cut is bad news for savers, as High Street banks use the Bank of England base rate as a reference point for savings accounts. The rate cut could, however, benefit homeowners, although it will not affect fixed-rate mortgages that account for roughly half of home borrowing in the UK.

Martin Lewis of MoneySavingExpert.com said after last week’s cuts that it is a good time to remortgage.

He told This Morning: “If you're looking to remortgage, I would say right now this is a very good time. I'd wait a week or two, because those mortgage rates are going to come down.”

The Bank also unveiled another £200bn in bond buying under the quantitative easing programme, as well as extending the term funding scheme. The latter is hoped to encourage lenders to pass on the benefits of interest rate cuts to companies and households.

Andrew Bailey, the new governer of the Bank of England, took over from his predecessor Mark Carney on Monday.