The Bank of England has cut interest rates to 0.25 per cent, down from its previous rate of 0.75 per cent, as part of a bid to support the economic repercussions of the ongoing coronavirus outbreak.
This emergency move comes after stock markets and shares have plummeted around the globe, following the spread of the Covid-19 strain of coronavirus.
‘The magnitude of the economic shock from Covid-19 is highly uncertain’
The decision to cut interest rates was taken at a special meeting of the Monetary Policy Committee (MPC) - and the vote was unanimous.
This is the first cut since August 2016, and the first unplanned rates decision since the financial crisis of 2008. London's FTSE 100 Index surged nearly two per cent in early trading after the cut.
The decision comes ahead of the Chancellor's Budget, which is due to be announced on Thursday (12 March), where further measures in response to the Covid-19 outbreak are also expected.
The Bank of England announced extra steps which will be taken in order to bolster lending by large amounts in order to support both households and businesses.
In a statement, the Bank said, "Although 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.
"Temporary, but significant, disruptions to supply chains and weaker activity could challenge cash flows and increase demand for short-term credit from households and for working capital from companies.
"Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy. "
Bank of England’s package of measures
The Bank's package of measures also includes a new term funding scheme, with additional incentives for both small and medium-sized enterprises (TFSME), which are designed to further boost lending and ensure that banks pass on the rate cut.
Further action by the Bank's Financial Policy Committee has also been taken to lower bank capital buffers and bolster their lending power by up to £190 billion.
The Bank said that its measures 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".
Businesses across the country have already reported a sharp decline in custom, with tourist numbers decreasing and more people deciding to stay at home.
The British Chambers of Commerce director general, Dr Adam Marshall, said, "Businesses will welcome the decisive action taken by the Bank of England to support the economy at this delicate moment.
"The Bank and UK financial institutions must now work together to ensure that these policy measures translate into real-world support for firms on the ground."