The Bank of England has cut interest rates to an all-time low of 0.1% in a further emergency measure to try and limit the economic impact of the coronavirus pandemic.
The Bank made the decision at a special meeting of the monetary policy committee on Thursday. It will also buy an additional £200bn of UK government and corporate bonds.
It comes a week after the Bank cut rates from 0.75% to 0.25% to address the mounting coronavirus crisis.
Central bank officials are known to be nervous about a collapse in business and consumer confidence after a spike in the number of virus cases and deaths.
Speculation that ministers are close to announcing further spending commitments to underwrite workers’ incomes, with vast extra borrowing needed to fund it, is also believed to be behind the move.
Jeremy Thomson-Cook, the chief economist at digital payments firm, Equals Group, said interest rates were “now at the lowest level we think the Bank of England is prepared to go”.
He said: “Lower rates and additional quantitative easing can keep markets satisfied and borrowing costs for both businesses and the government down but 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.”
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The pound rose in value after the announcement, having endured its fifth worst day of the century against the US dollar on Wednesday.
The move follows the creation of a €750bn (£637bn) emergency fund by the European Central Bank to extend its bond buying programme, supporting indebted companies in the eurozone.
Karen Ward, a senior analyst at JP Morgan Asset Management, and a former Treasury adviser, said: “It is the additional quantitative easing in today’s Bank of England package that will have the most significant impact, both in terms of the market reaction but also a solution to the economic challenges presented by Covid-19.
Ward added: “The support to the economy and health system will require vastly higher government borrowing. The central bank showing willing to buy government debt will ensure the market can absorb this additional issuance without undue stress.”
