Bank of England cuts interest rates to 0.1%

The Bank of England has cut interest rates to 0.1% - the lowest level in history - from 0.25% as it looks to limit the economic fallout from the coronavirus pandemic.

It said in a statement: "In light of actions to tackle the spread of the virus, and evidence relating to the global and domestic economy and financial markets, the Monetary Policy Committee (MPC) held an additional special meeting on 19 March.

"Over recent days, and in common with a number of other advanced economy bond markets, conditions in the UK gilt market have deteriorated as investors have sought shorter-dated instruments that are closer substitutes for highly liquid central bank reserves. As a consequence, UK and global financial conditions have tightened."

At a special meeting on Thursday, the MPC voted unanimously to cut rates and to increase holdings of UK government bonds and sterling non-financial investment-grade corporate bonds by £200bn to £645bn. It also agreed to enlarge the term-funding scheme for small and medium-sized enterprises.

The BoE said the spread of the coronavirus and measures being taken to contain it will result in "an economic shock that could be sharp and large, but should be temporary".

This marked the Bank's second emergency cut this month. On 11 March, it slashed the base rate to 0.25% from 0.75% due to the coronavirus. At the time, it noted the sharp declines in risky asset and commodity prices and the fact that government bond yields had reached all-time lows. It said this was "consistent with a marked deterioration in risk appetite and in the outlooks for global and UK growth".

"Indicators of financial market uncertainty have reached extreme levels," it said.

Sterling popped higher after the announcement and by 1505 GMT, was trading up 1% against the dollar at $1.1720, having crashed below $1.15 on Wednesday to levels not seen since the 1980s.

Oanda analyst Craig Erlam said: "The move triggered a little bit of activity in the pound, which has come under considerable pressure over the last week or so, before settled around the pre-announcement levels.

"The biggest impact has come in government bonds, where the BoE stated it will focus much of the new asset purchases, with the program increased by almost 50%. This should alleviate some of the pressure that's built in the aftermath of the UK governments huge stimulus plans which will flood the market with new debt.

"The rate cut is largely symbolic and highlights just how little room the Bank has to manouvre on the traditional side which the increase in the term funding scheme should provide additional relief to SMEs. Whether that will be enough to reduce layoff's and stop good businesses going bust, we'll have to wait and see. Both seem inevitable, even with all of this support."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the Committee "has gone big and early, again"

He said the £200bn of asset purchases greatly exceeded economists’ expectations. Pantheon was anticipating an extra £60bn, while the consensus expected no purchases this month. It also tops the £70bn announced after the EU referendum.

Tom Stevenson, investment director for personal investing at Fidelity International, said Britain was now just a whisker away from "the negative interest rate club".

"Rates have never been this low in the more than 300-year history of the Bank of England. Purchases of government and corporate bonds have been ramped up. A desperate measure for a desperate situation.

"Both governments and central banks have quickly acknowledged that we face a sharp downturn. The question now is whether the Bank’s assumption that the hit will be temporary is correct. It could be. The infrastructure of global supply remains in place and global demand should bounce back quickly once the outbreak passes."