Central banks react to virus, Dow enters bear market
THE BANK of England slashed its key interest rate by half a percentage point to 0.25 per cent on Wednesday, as part of an emergency package of measures to cushion the “economic shock” of the coronavirus outbreak.
In a coordinated move, the United Kingdom government announced a raft of short-term measures to keep individuals and businesses afloat.
“We are doing everything we can to keep this country and our people healthy and financially secure,” said Treasury chief Rishi Sunak. “We will get through this together.”
Sunak said the new coronavirus sweeping the globe would have “a significant impact on the UK economy, but it will be temporary”.
In the government’s annual budget, Sunak announced €30 billion (US$39 billion) in temporary relief, including extra funding for the health service, sped-up sick pay and benefits payments for people who are off work, and relief for struggling businesses.
He said the government would refund the cost of sick pay to firms with less than 250 employees and would provide cheap loans for small businesses.
Earlier, the central bank said its surprise rate cut would “help support businesses and consumer confidence at a difficult time”.
The cut took the main rate to a record low, last reached after Britain’s June 2016 vote to leave the European Union. It came just hours before the British government was expected to announce its own package of measures to shore up the economy against arguably the biggest economic shock since the global financial crisis 12 years ago.
The cut follows similar reductions from the US Federal Reserve and the Bank of Canada. The European Central Bank is also expected to announce a package of stimulus measures today, Thursday.
Suddenly staring recession in the face, European leaders are lining up an array of tax breaks, financial support for companies, and likely central bank measures in the hope of preventing the coronavirus outbreak from dealing longterm damage to the economy.
GROWTH SLASHED
Growth projections have been slashed for all major world economies as the virus halts production and dents business and consumer confidence. Global stock markets have suffered their biggest daily losses since the height of the global financial crisis in 2008.
The Dow Jones Industrial Average dropped 1,464 points by mid-afternoon, bringing it 20 per cent below its record set last month and putting it in what Wall Street calls a ‘bear market’. The broader S&P 500, which professional investors care more about, is just one percentage point away from falling into bear territory and bringing to an end one of the greatest runs in Wall Street’s history.
Expectations have grown that European Central Bank officials will announce more monetary stimulus when they meet.
The European Commission plans to set up a €25-billion (US$28-billion) investment fund to support the healthcare system, businesses and labour market measures. The Italian government is offering an aid package of about the same size.
In contrast to Italy, the epicentre of Europe’s outbreak with 10,100 cases, Britain has only 373 confirmed cases of COVID-19 and six deaths. But the outbreak has already affected the UK economy, hitting tourism and clogging up the global supply chains that many modern businesses rely on.
Oil prices also fell further Wednesday below US$33, while Brent crude, the international standard, was trading below US$36 per barrel.