Coronavirus: Bank of England keeps rate at historic low

Bank of England Governor Andrew Bailey in London March 16, 2020 (POOL / Tolga AKMEN)

The Bank of England has chosen to keep its key interest rate at its historic low, deeming a “sharp fall” in world GDP in the first half “likely” because of the Covid-19 pandemic which paralyzes the economy.

The institution announced Thursday to keep its interest rate at 0.1%, a week after lowering it to this historically low level.

A “sharp fall” in world GDP in the first half is “likely” and “there is a risk of long-term danger to the economy” British, said the central bank.

Members of the Monetary Policy Committee (MPC) also decided to continue the asset buyback program, which had been increased by 200 billion pounds to bring it to 645 billion last Thursday. It was on this occasion that they also decided to lower the interest rate by 0.15 percentage points, to fix it at 0.1%. At the start of the month, it was still 0.75%.

Governor Andrew Bailey, who had just taken office as head of the institution, said on Thursday that the situation was “clearly unprecedented” and that “things have moved too quickly” to await the scheduled meeting this week.

As expected, the Bank of England (BoE) has said it is ready to do more “if necessary” to support the economy.

This continued monetary policy did not surprise investors and the pound did not react, the status quo being expected.

Some may have been “slightly disappointed that the MPC did not choose to copy the US Federal Reserve by committing today to buy bonds for an indefinite period,” said Samuel Tombs, economist at Pantheon Macroeconomics.

“The Bank can do nothing against what it has described as a significant contraction in GDP. But it is trying to prevent the economic crisis from turning into a financial crisis and seeks to give the economy the best chance to rebound. times the virus is contained, “reacted Paul Dales, an analyst for Capital Economics.

The BoE thus ruled that “the cash flows of businesses will be severely affected, which, in the absence of support measures, could threaten the bankruptcy of a large number of businesses and cause a significant and persistent increase in unemployment”.

“The nature of the Covid-19 economic shock is very different from that (of the other economic shocks) to which the MPC has already had to respond”, even if it should be “temporary”, she warned.

– Worse than 2008 –

The spread of the Covid-19 epidemic has accelerated considerably in recent days in the United Kingdom, with 463 deaths and 9,529 cases of contamination officially recorded. Prince Charles, heir to the throne, has notably been tested positive.

Since Europe has become the epicenter of the coronavirus pandemic, many countries have imposed population containment, paralyzing economic activity and forcing central banks to take exceptional measures.

In her regular business survey, the situation was described by many respondents as “worse than the financial crisis of 2008” and 71% of the 2,500 players who spoke said they expected an impact negative of the epidemic on their activity.

To curb the recession, the British government is expected to unveil measures on Thursday to help the self-employed, an already precarious population hit hard by the economic paralysis. On Friday, he had already announced an “unprecedented” battery of measures to put the economy on a drip and save jobs.

On Wednesday, the BoE and the Treasury issued a letter instructing banks to “maintain and scale up lending despite economic uncertainty”.

If the economic consequences of the pandemic remain to be measured, activity already collapsed in March in the United Kingdom, according to a first estimate of the PMI index, which fell to its lowest level since the publication of the first data in January 1998, while the last containment measures did not take effect until Monday evening.

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