Flash Report /
United Kingdom

UK rate cut: International policy scrambles to respond to coronavirus

  • The UK is the latest country to cut interest rates

  • This emergency rate cut by 50bps to 0.25% comes ahead of what is expected to be an expansionary UK budget later today

  • But there is only so much traditional economic policy levers can do

Stuart Culverhouse
Stuart Culverhouse

Chief Economist & Head of Fixed Income Research

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Tellimer Research
11 March 2020
Published byTellimer Research

The UK has become the latest country to cut interest rates in response to the economic impact of the coronavirus, with the Bank of England's Monetary Policy Committee (MPC) cutting bank rate by 50bps to 0.25% (from 0.75%) this morning. This emergency rate cut comes ahead of the scheduled MPC meeting due on 26 March and what is expected to be an expansionary UK Budget later today. As well as the cut in the policy rate, the Bank of England’s MPC announced the introduction of a new Term Funding Scheme with additional incentives for SMEs and decided to maintain its current level of bond purchases. 

In our report on 5th March, we looked at the international policy response to the coronavirus (Covid-19). Besides the global monetary response – led by the US, and provision of emergency financing pledged by the IMF and World Bank – some countries have also instituted their own fiscal packages. Whether this global response is enough remains to be seen. It may just be the first wave.

As we said then, we think there is only so much traditional economic policy levers can do. Token monetary easing may help soften the blow and alleviate financing pressures for some, although targeted fiscal measures – for the vulnerable, unemployed, working poor and credit constrained – may be more useful. But none of these can ensure a V-shaped recovery rather than a U-shaped one, while the fear-factor (simple psychology) dominates and uncertainty over its duration persists.

If you missed our report first time round, you can read it here.