The Bank of England (BOE), the UK's central bank, cut interest rates by 0.5 percentage points on Wednesday morning as part of an emergency response to the coronavirus, or COVID-19.
A public statement said: ”At its special meeting ending on 10 March 2020, the Monetary Policy Committee (MPC) voted unanimously to reduce Bank Rate by 50 basis points to 0.25%. The central bank's benchmark interest rate before the cut were 0.75%.
The reduction in Bank Rate will help to support business and consumer confidence at a difficult time, to bolster the cash flows of businesses and households, and to reduce the cost, and to improve the availability, of finance,” the BOE said.
The BOE follows a similar move by the Federal Reserve last week where the Fed cut rates by 50 basis points (bps) in an emergency move in a response to the rising uncertainty posed by coronavirus.
The British pound briefly fell after the Bank of England decision but pared losses to trade at US$ 1.2904 against the dollar at 07:58AM GMT.
Following the spread of COVID-19, risky asset and commodity prices have fallen sharply, and government bond yields reached all-time lows, 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, the BOE said.
The BOE's statement further added that while the magnitude of the economic shock from COVID-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months.
The central bank also announced a number of additional incentives for Small and Medium-sized Enterprises (TFSME), financed by the issuance of central bank reserves.