In a move that few expected, the Bank of England has decided to make an emergency cut in interest rates. The reduced rate has gone from 0.75% to 0.25%. This will take the cost of borrowing to the lowest levels in history.
The Bank of England hopes that by cutting the interest rate down by 0.5%, they can free up billions of pounds. This can provide extra lending power to banks to help stimulate the economy through spending.
The Coronavirus pandemic that’s sweeping the world is largely blamed for the rate change.
The Spread Of Coronavirus
Coronavirus has spread quickly throughout the world, with hotspots in China, Italy and Iran. However, there are also more cases reported daily from dozens of other countries and infections in new countries reported regularly.
The fear amongst consumers has caused panic buying in many countries. In the UK, toilet rolls, pasta and baked beans have been very popular items that have been reported as selling out.
The damage from the virus has had significant impacts on the business world. Flybe, who was already in financial trouble, has ceased trading when demand for seats reduced due to the virus. Other airlines have also reported profit warnings such as Cathay Pacific, the Hong Kong national airline as a classic example.
Consumers Have Stopped Buying
The Bank of England’s outgoing governor, Mark Carney, announced the news of the rate cut in the morning with news of how the economy is coping. According to his analysis, there has been a sharp fall in consumer spending on non-essential goods.
As a result of the lack of spending by consumers, Mark Carney has suggested that the UK economy could shrink. He has partly based his assessment on the evidence coming from China that suggests their economy is on course to contract for the first quarter of 2020.
Similar measures made in other countries
While the rate cut was a shock, other countries have considered or taken the action to stimulate their economy.
In addition to these measures, many governments across the world, including the UK’s, have announced fiscal plans to help improve the economy.
But hope is on the horizon. Recent statistics from China have shown that the spread of the virus is slowing down and some workplaces are now reopening.