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Industry reaction to BoE rates cut over Covid-19 outbreak

by LLB Reporter
11th Mar 20 11:53 am

The Bank of England today announced an emergency cut in interest rates as the country grapples with the coronavirus outbreak.

Threadneedle Street slashed rates by 0.5% to 0.25% – the joint lowest in history.

Outgoing Bank of England governor Mark Carney said: “Activity is likely to weaken materially in the coming months” in the wake of coronavirus, says Governor Mark Carney. Smaller companies will be worst hit.

“The reduction in bank rate will help bolster confidence at this difficult time,” he added.

Rain Newton Smith, CBI Chief Economist said, “Measures to help the flow of credit and support businesses potentially facing cash flow issues could make a real difference in the weeks ahead.

“All eyes are now on the Chancellor today to do his part. This is a timely, proportionate response to a serious situation, though it’s vital policy is kept under review as things improve.”

Halo Financial Founding Director, David Johnson said, “The Bank of England added to the nervousness over COVID-19 by cutting the UK interest rates from 0.75% to just 0.25% overnight. Sterling slipped a little but starts the day around EUR 1.1380 and USD 1.2890.

“That is a far smaller decline than we might have expected but, if the coronavirus progresses more slowly than forecast in the UK, this will be a boon to businesses. The UK interest rates cut obviously damages savers once again though. As I write, the Pound is regaining some of that lost ground, so it may be stronger by the time you read this.”

Celine Hartmanshenn, Global Head of Risk at Stenn Group, an international provider of trade finance headquartered in the UK, comments on the BoE’s decision to cut interest rates to 0.25% as an emergency measure.

She said, “The Bank of England has wasted no time cutting rates to near rock bottom levels. But while it may bring some benefit to consumers and heavily indebted companies, lowering interest rates is unlikely to help prevent the economic wrath of the coronavirus. We saw this already in the trade war. Lowering rates helps the stock markets, which will become more relaxed now, but the real economy isn’t the stock market.

“It’s unlikely that indebted companies, those in need of financial support, will be unable to access further loans from banks, as they’ll be looking at ratios of balance sheets, and there is an end of the line which was reached way prior to the trade war. These companies will now need to look to private lenders and alternative finance providers instead.

“Cheaper money also won’t have much effect in a supply shock. Manufacturing is where we will see one of the biggest crunches, and will cause the economy to dip. The volume of goods being produced is lowering, as factories in China, usually in a dominant manufacturing position, are operating at about 50% of the workforce. This will have a ripple effect around the world, not just in the UK but emerging markets who rely on China for goods.

“The ECB is due to report tomorrow and we’re expecting a reduced rate also, but it’s a mistake for central banks to use Coronavirus as an excuse to lower interest rates. It would be more effective for governments to introduce temporary tax breaks, new loan programs, or other financing to companies hurt by the virus. This is all about raising stock prices and lowering borrowing costs. The measures put forward by the world’s bankers can’t keep workers from getting sick or factories from closing.”

Simon Cureton, CEO of Funding Options said, “The Bank of England is right to make a swift decision to cut the base rate, rather than waiting until the end of March. It’s good news for small businesses, which may have felt the effects much more acutely had the Bank waited until the end of the month.

“We are only at the very beginning of this health crisis, and the effects of COVID-19 on businesses are only just beginning to emerge. It is very likely that the worst is yet to come, and organisations large and small need to plan for every contingency. Many will need to take on extra financing to secure themselves against a downturn.SMEs make up 99% of the UK’s businesses, and their survival is essential for the health of the overall UK economy.

“Offering access to cheaper finance and payment holidays where necessary will help ensure their longevity, and make it easier for entrepreneurs who rely on their businesses to pay mortgages, support families, and save for retirement.

“At Funding Options we’ve seen an increase in enquires for working capital finance, and our lending partners will be using this additional funding from the BoE to help businesses through the downturn caused by COVID-19.

“During this crisis, we must all work together to keep the UK’s economy moving forward, and the lending space has a vital role to play in supporting those that need a little extra flexibility.”

Rhydian Lewis, CEO of peer to peer platform RateSetter said, “The Bank of England has made the right call to support the economy at this difficult time.  However, millions of savers will be nervously anticipating the interest rates on their cash to be cut to zero. With this year’s ISA deadline just around the corner and equities extremely volatile, more people than ever will now be looking for alternatives that perform steadily in order to keep their money earning.”

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