The Central Bank of England has cut its basic rate by half a percent to 0.25%. This is an absolute historical minimum. The Bank of England explained its actions by the need to support the economy at a time of coronavirus.
The regulator said the measure had been taken to support companies and households that might not be ready for a sharp deterioration in the economic situation. The Central Bank estimates the probable crisis as “short-term” and “extensive”.
Additionally, banks will be allocated 190 billion pounds to issue loans. 435 billion government bonds will be bought from the market.
The Bank of England notes that with the spread of coronavirus risky assets and raw materials began to fall in value. Government bonds show the lowest yields in the history. There is still much uncertainty in the market.
The Central Bank believes that the biggest problems will affect small businesses. Impact on the economy is not yet clear. It is assumed that business activity will decrease and there will be interruptions in the supply of various goods. Cash flow may also be affected. Because of this, the population will be forced to turn to banks for loans. Companies may experience a shortage of working capital.
The material was prepared with the participation of Katya Wilson,
a leading analyst of the brokerage company UFT Group