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The Bank of England cuts interest rates by half. The country’s Health Minister Nadine Dorries tested positive for coronavirus.
The Bank of England (BoE) today announced that it has unanimously agreed to cut the interest rates by half to a hit 0.25%, in order to support bank lending. The move to cut rates was due to the huge negative impact caused by the coronavirus which has spread from China to other countries, especially the developed economies.
In a statement, the Bank of England wrote, ‘although the magnitude of the economic shock from COVID-19 is highly uncertain, activity is likely to weaken materially in the UK over the coming months.’ The Central Bank also announced a new term-funding scheme that is meant to support the small and medium companies.
The bank also noted that the coronavirus spread has been a major contributor to risky assets and commodity prices falling sharply, whereby, the government bond yields hit the all-time lows. As a result, the sterling pound shed its value in relation to other major world currencies like the dollar, trading at $1.29 at the time of writing.
According to the Central Bank Governor Mark Carney, the coronavirus outbreak is a different form of shock much greater than the 2008 economic crisis. He added that “the financial system was the core of the problem then, and there is no reason for this shock to turn into the experience of 2008 if we handle it well”.
Wider Overview of Coronavirus
Coronavirus has managed to hold most developed countries’ economies into hostage, leading to a stock market recession. The United States led the move to cut interest rates due to the coronavirus impact on the economy last week.
The virus has not spared even the health officials and workers after the country woke up to the shocking news of the health minister Nadine Dorries, who tested positive of the deadly coronavirus. The numbers have been rising since the country reported the first case last month, whereby, at the time of writing, 382 cases of coronavirus had been confirmed in the UK.
Was the Decision of Bank of England to Cut Rates a Mistake?
Dust from the Brexit tussle has not yet settled, which held the UK’s economy hostage for over two years. With the coronavirus outbreak showing signs of pushing the country to a corner, things might not be very green for the U.K economy at large.
Flights are being canceled, people being told to stay indoors to avoid contracting the deadly virus, it may be the recipe for turf times ahead. According to Jim O’Neill, ‘the rate cut part strikes me as a mistake and too soon because they might need these bullets if demand does get a lot weaker.’