Bank of England governor Mark Carney has said interest rates could be cut even further following today’s decision to slash the UK base rate by 50 basis points.
The central bank announced this morning (March 11) it had cut the base rate to 0.25 per cent from 0.75 per cent in a bid to boost economic demand at a time when coronavirus is causing severe economic uncertainty.
The 0.25 per cent base rate is the joint-lowest the BoE’s rate has ever been.
But at a press conference after the announcement, the bank’s top boss said the rate could be reduced even further. He said: “There is room for interest rates to be cut further, to just above zero."
Mr Carney also curbed fears of a domestic or global recession, claiming it was “too early” to talk about a recession and that the central bank would take “all further necessary steps” to support the UK economy and financial system.
The UK economy stagnated in the three months to January at 0 per cent growth, according to data published by the Office for National Statistics today (March 11).
Mr Carney said the base rate was part of a “comprehensive and timely package” to help businesses and households manage through the coronavirus shock, which could prove “large and sharp” but “should be temporary”.
These measures also include a new term funding scheme to incentivise banks and building societies to lend, especially to small and medium sized enterprises, which should create more than £100bn of new credit, according to Mr Carney.
A further £190bn of lending would also be created by reducing the UK countercyclical capital buffer rate to 0 per cent, incoming-governor Andrew Bailey added.
Mr Carney also hinted there would be a number of measures announced in the Budget — set to be announced later today — which would support the BoE’s decisions.
He said: “Maximising the effectiveness of our measures means coordination across all the bank’s policy committees, which are simultaneously acting today, and working the Treasury, so acting on Budget day.”
Paul Gibson, director at Granite Financial Planning, said: “It is good to see the BoE taking positive action in lowering interest rates. They can obviously go even lower although the impact may be reduced.
“I suspect that other options may be considered before a further reduction.”
Jason Hollands, managing director at Tilney, said the Bank’s message was clearly that “they can and will do more” if required.
He added: “UK coronavirus reported infections are actually low at present but expected to rapidly peak in a couple of weeks, so the health threat and economic disruption is likely to get considerably worse before it gets better.
“A further rate cut to an all-time low is therefore possible, as well as renewed quantitative easing.”
Meanwhile Paul McGerrigan, chief executive of Loan.co.uk, said the fact Mr Carney was open to slashing rates beyond the record-low 0.25 per cent showed just how seriously the BoE was taking the current situation.