The Bank of England has cut interest rates again in an emergency move as it tries to support the UK economy in the face of the coronavirus pandemic. It is the second cut in interest rates in just over a week, bringing them down to 0.1% from 0.25%. Interest rates are now at the lowest ever in the Bank’s 325-year history.
The Monetary Policy Committee decided on the 0.15 percentage point cut at an emergency meeting where it also announced it would buy £200 billion in bonds as part of expanded quantitative easing measures, taking its QE programme to £645 billion.
Responding to the announcement Markus Kuger, Chief Economist at commercial data and analytics firm, Dun & Bradstreet said “The Bank of England’s decision to cut interest rates by a further 15 basis points to a new all-time low of 0.1% and the increased Quantitative Easing budget indicates the severity of the current situation.
“Although the central bank is launching more monetary stimulus and the government has announced new fiscal measures worth £330bn (equivalent to a sizable 15% of GDP), the economic damage caused by the coronavirus pandemic will be sizable. Dun & Bradstreet’s baseline scenario for 2020 is now based on UK real GDP growth declining for the first time since the global financial crisis. The simultaneous supply and demand shocks are likely to cause the UK to fall into recession over the coming months, cross border trade and investment will be impacted severely and a V-shaped recovery looks increasingly unlikely. This means that the impact of the coronavirus outbreak could be felt by businesses well into 2021.”
Alex Maddox, Capital Markets Director, Kensington Mortgages said “The Bank of England is taking out the big guns. The rate cut is mostly just a signal – trimming another 15bp to 0.10% will have a negligible impact, as rates are already so low. What will make a big difference are the two other measures announced by the bank – a massive 45% increase in the Quantitative easing programme to £645 billion, and even more money to the funding schemes that can get cash to consumers and small businesses.”
Miles Robinson, Head of Mortgages at online mortgage broker Trussle, said “It’s hard to predict how the interest rate cut will impact the mortgage market. We’re in changing economic waters and the situation is evolving constantly. The spread of COVID-19 and the measures being taken to contain the outbreak are resulting in economic shock.”
“In these unprecedented times, we’re also encouraging those who are concerned about their finances to keep an eye on their mortgage. Mortgages are often the biggest monthly bill that people face and it’s worth using a remortgage calculator to see if switching could save you money.”
Landbay CEO John Goodall said “It is hard to see how this extra 0.15% drop in base rate will make much of a difference. It is the £200bn bond buying programme that is more relevant; although it is basically printing money again, this is more likely to push cost of borrowing down, although I suspect the Bank will need a lot more than £200bn.”
“What will make the biggest difference now are fiscal measures such as grants for businesses and other steps to help to maintain employment levels.”