BANK FIRES ITS ‘BIG BAZOOKA’
Base rate cut to 0.25% – the joint lowest point in history
THE Bank of England used its ‘big bazooka’ yesterday in the fight against coronavirus by slashing interest rates to just above zero.
In a desperate effort to shield the economy from the contagion, it announced the first emergency cut since the 2008 financial crisis.
The base rate was reduced from 0.75 per cent to 0.25 per cent, the joint lowest level on record.
It is the first cut since August 2016 – when rates were also reduced to 0.25 per cent – and the first unscheduled emergency cut since the depths of the ‘Great Recession’ 12 years ago.
The Bank also unleashed a £290billion stimulus package to prop up struggling small firms, many of which are facing ruin due to the impact of the corona crisis.
It said the measures would help UK businesses and households ‘manage through an economic shock that could prove sharp and large, but should be temporary’.
Governor Mark Carney, who steps down on Sunday, said the Bank would be prepared to cut rates again to the lowest level in its 325-year history. He said ‘we can go close to but not lower than nought per cent’.
Asked if this meant cutting rates to 0.1 per cent, he said: ‘Yes.’
The drastic measures should help struggling businesses as well as millions of households on variable and ‘tracker’ mortgages that are linked to the Bank’s base rate.
Yesterday Britain’s biggest mortgage lender Lloyds Banking Group became the first to announce cuts of 0.5 per cent for Lloyds and Halifax customers on these types of deals.
With other lenders expected to follow suit, experts said families were in line to save roughly £55 a month on a £200,000 mortgage. But campaigners described the rate cut as disastrous for savers.
The average rate paid in a standard savings account is now just 0.56 per cent, and 0.84 per cent in a cash Isa, according to Moneyfacts. Some accounts pay as little as 0.1 per cent.
Rachel Springall, of Moneyfacts, said: ‘This will be devastating news for savers who are already seeing returns plummet across the market. It provides the perfect excuse for banks to cut rates even further.
‘Savings rates could well be pushed to record lows now, with some paying zero interest.
‘It almost seems inevitable at this stage that the base rate reduction could get passed on in full to savers over the next few months.’
Martin Lewis, of MoneySavingExpert.com, said the Bank’s actions were ‘extraordinary, unprecedented economic shock therapy’.
He added: ‘While our first actions and thoughts need to be for the health of the nation’s vulnerable – the impact on people’s pockets can’t be ignored. The losers are savers.’
Mr Carney acknowledged the impact of the rate cut on savers but said the priority was protecting the public, jobs and the wider economy.
Banks will be supplied with ultracheap credit so they can boost lending to businesses – particularly smaller firms – and households.
Neil Wilson of Markets.com said: ‘The Bank of England fired its big bazooka today with a 50 basis points cut to rates, but it’s really an appetizer for the main course later.
‘The key question is whether banks will simply lend more? It needs to come with genuine commitment.’
‘Unprecedented shock therapy’