The monetary institution indicates that it decided unanimously and after an emergency meeting, a drop in its rates from 0.75% to 0.25%.
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The Bank of England (BoE) announced a surprise and drastic cut in rates on Wednesday to help the UK economy face the “shock” of the coronavirus epidemic, a decision that comes just before the budget is presented by the government.
The monetary institution said Wednesday in a statement, having decided unanimously and after an emergency meeting, a drop in its rates from 0.75% to 0.25%.
In the process, the British pound weakened sharply against the dollar and the euro before limiting its losses.
This drop in rates is the largest since early 2009, at the height of the international financial crisis. Rates are returning to their historic low and have returned to their level in the months following the Brexit vote.
The BoE will also encourage banks to lend to businesses and households, saying “activity is likely to weaken significantly in the UK in the coming months.”
It also opted to relax the solvency rules so that banks have more flexibility to finance the economy.
This is likely the latest decision made under the aegis of Governor Mark Carney, who leaves office over the weekend to make way for Andrew Bailey, the current head of the UK financial regulator.
The BoE follows in the footsteps of the Federal Reserve (Fed) which already announced last week a rate cut without waiting for its regular meeting, in order to support activity and to reassure markets panicked by the advance of the epidemic of coronavirus.
The European Central Bank (ECB) is due to unveil its mechanism on Thursday after its meeting.
In its statement, the BoE, which is scheduled to hold its meeting at the end of the month, expects an “economic shock which could be sharp and significant but should be temporary”, without providing a quantified forecast.
The institution explains that SMEs will be particularly affected, both by disruptions in supply chains and by lower demand.
A shaken budget
These spectacular measures are announced by the BoE a few hours before the presentation by the British government of its first post-Brexit budget.
According to Neil Wilson, analyst at Markets.com, “It’s a smart decision to act before the next scheduled meeting and do this on budget day to maximize the effectiveness of the rate cut by linking it to budget measures.” “
Finance Minister Rishi Sunak will leave 11 Downing Street as usual in the morning with the famous red briefcase in his hand that houses the text of his speech, before speaking at 12:30 p.m. GMT in Parliament.
The challenge is daunting for the Chancellor of the Exchequer, who will have had only a month since taking office to prepare a budget supposed to turn the page on austerity and fulfill the promises of Prime Minister Boris Johnson.
But the coronavirus crisis has changed plans at the last moment and should force the government to spend billions of pounds to avoid a waning economy.
The first budget for the United Kingdom in 18 months, taking into account the successive postponements caused by Brexit and the elections, will also be an opportunity for the authorities to unveil their economic forecasts.
The economy seemed to tremble at the start of the year thanks to renewed confidence linked to the clarification of Brexit, made at the end of January, before the coronavirus came to darken the landscape.
The government has also chosen to postpone the publication of its infrastructure strategy, despite its promise to lead a “revolution” in the matter. These measures, estimated at some £ 100 billion, are expected to help the country meet its goal of carbon neutrality by 2050.
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