Bank of England prepared to cut interest rates to soften the impact of the Coronavirus
Mark Carney has signalled that the Bank of England would be prepared to cut interest rates and allow banks to use “rainy day” funds to soften the impact of the coronavirus outbreak on the UK economy.
Giving evidence to the parliamentary Treasury Committee on Tuesday, the outgoing BoE governor said the central bank’s role was “to help UK businesses and households manage through an economic shock that could prove large but will ultimately be temporary”. “We don’t want viable businesses to go out of business because of the very necessary steps that need to be taken to protect and serve the British public,” he told the committee. “Supply disruption, as opposed to a permanent impairment of supply, is important.” He added that the monetary policy committee would need to judge how far disruptions to supply caused by the virus were affecting aggregate demand — which central banks are more able to influence.
In a clear hint that the BoE would be ready to cut interest rates, Mr Carney said disruption from the virus could hit companies’ cash flow, affect the availability of finance and hit confidence — and that it was “reasonably plausible that the demand effect would be greater than the supply effect in the near term”.
He did not rule out a rate cut before the MPC’s next meeting this month. Mr Carney also said the BoE was looking at ways of ensuring that banks could use their balance sheets as effectively as possible to lend to businesses needing working capital to stay afloat if they were affected by the spread of the virus.
Marc Cox of Cox & Co says
A cut in interest rates will no doubt give the housing market a small to modest lift however in the long term we must get back to seeing a normalisation in interest rates, as savers are really bearing the brunt of this.
We don’t want to see a continued increase in house prices which this cut may achieve, as really doesn’t help young families and first-time buyers what we need to see is an increase in transaction levels.