Bank of England keeps base rate at 0.1%

The Bank of England has kept the base rate at its historical low level of 0.1% as it appears to respond to the severe economic and financial disturbance caused by the coronavirus.

The Monetary Policy Committee (MPC) voted unanimously to keep the base rate at 0.1% after previously cutting rates from 0.75% to 0.25%. This is the lowest level ever in the history of the Bank.

The members also unanimously voted to continue its East Quantitative (QE) program by purchasing £ 200 billion of UK government bonds and pounds of investment grade non-financial corporate bonds, bringing holdings to £ 645 billion.

The minutes of the meeting read: “The spread of the disease and the measures that may be needed to contain it have evolved significantly. The economic consequences of these developments are becoming more evident and a very sharp reduction in activity is likely. Given the seriousness of this disruption, there is a risk of long-term damage to the economy, especially if large-scale business failures or significant increases in unemployment occur.

“In the short term, many people will not be able to work for a period and others are adjusting their ways of working. Many consumer-facing companies are now forced to cease operations for a while, while other companies have also had to cease. or resize your activities.

“Household spending on social activities and other forms of delayable consumption is likely to decrease materially. In an environment of greater uncertainty, firms are likely to postpone investment decisions. Exports are likely to weaken. These effects on economic activity will be partially offset by temporarily higher expenses for essential goods and services. However, corporate cash flows will be severely affected in such a way that, without support measures, they would threaten the failure of a significant number of businesses and consistent and persistent increases in unemployment. “

They added that global GDP will drop dramatically during the first half of this year and that the pound has already fallen sharply.

In addition, CPI inflation was 1.7% in February and was set to drop further below the 2% target for the MPC. However, given the current situation, it is likely that it will now drop below 1% in the spring “reflecting the shift in fuel prices of the recent and sharp drop in oil prices”.

Further on, inflation will be strengthened by the significant depreciation of the sterling exchange rate.

“The MPC will closely monitor developments in inflation and inflation expectations indicators, including those of households, businesses and financial markets,” he added.

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