BoE keeps interest rate at record-low 0.1%

Monitoring Desk

LONDON: The Bank of England kept its main interest rate at 0.1 percent Thursday, a week after cutting the borrowing cost to the record-low level to combat economic fallout from the coronavirus.

The BoE’s Monetary Policy Committee opted to maintain the rate at a scheduled gathering after last week’s emergency meeting that was sparked by the fast-moving COVID-19 outbreak. Policymakers also voted to keep its quantitative easing bond-buying stimulus as £645 billion, after injecting another £200 billion last week.

The BoE warned that the global economy was set to shrink “sharply” in the first half of 2020 as a result of the devastating disease, which has so far killed more than 21,000 people worldwide and infected almost half a million across 182 countries.

The bank also predicted that the British economy would likely suffer a “very sharp” drop in economic activity. “There is little evidence as yet to assess the precise magnitude of the economic shock from COVID-19,” read minutes from the MPC meeting that ended Wednesday.

“It is probable that global GDP will fall sharply during the first half of this year. Unemployment is likely to rise rapidly across a range of economies, as suggested by early indicators.” The BoE added that the pandemic’s economic impact was “becoming more apparent”, while indicating that it might have to adapt its policy accordingly.

“The spread of the disease and the measures that are likely to be needed to contain it have evolved significantly,” the minutes read. “The economic consequences of these developments are becoming more apparent and a very sharp reduction in activity is likely.

“Given the severity of that disruption, there is a risk of longer-term damage to the economy, especially if there are business failures on a large scale or significant increases in unemployment.”

Prior to Thursday, the BoE implemented two emergency interest rate reductions this month.

The bank cut borrowing costs to 0.1 percent on March 19, when it also expanded its QE stimulus. That move came eight days after it had already sliced rates to a then-record low of 0.25 percent from 0.75 percent.

Quantitative easing is the process firmly established by central banks following the global financial crisis more than a decade ago to pump out much-needed liquidity in order to stimulate lending and boost growth.