Bank of England announces rate cut 0.25% to tackle coronavirus

The Bank of England has slashed interest rates from 0.75% to 0.25% in an emergency move to counter the "economic shock" of the coronavirus outbreak.

The Bank said the decision follows the spread of Covid-19, which has seen stock markets and shares plunge around the world.

The move – which comes ahead of measures also expected in the Chancellor's Budget on Thursday – sees rates taken back down to all-time lows, with the Bank also announcing extra action to bolster lending by billions of pounds to support households and businesses.

In a statement, the Bank said the package of measures would help the UK manage through an "economic shock that could prove sharp and large, but should be temporary".

It is the first cut since August 2016 and the first unplanned rates decision since the 2008 financial crisis.

London's FTSE 100 Index surged nearly 2% in early trading after the cut.

The Bank said: "Although the magnitude of the economic shock from Covid-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months.

"Temporary, but significant, disruptions to supply chains and weaker activity could challenge cash flows and increase demand for short-term credit from households and for working capital from companies.

"Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy. "

The rate cut decision was taken at a special meeting of the Monetary Policy Committee (MPC) which ended on Tuesday and the vote was unanimous.

The Bank's "comprehensive and timely" package of measures also includes a new term funding scheme with additional incentives for small and medium-sized enterprises (TFSME), designed to further boost boost lending and ensure banks pass on the rate cut.

Further action by the Bank's Financial Policy Committee, which monitors the stability of Britain's financial system, has also been taken to lower bank capital buffers and effectively bolster their lending power by up to £190 billion.

The Bank said its measures will "help to support business and consumer confidence at a difficult time, to bolster the cash flows of businesses and households, and to reduce the cost, and to improve the availability, of finance".

Earlier this month, the US Federal reserve cut its own interest rates in response to the coronavirus fears, and Andrew Bailey, the incoming governor of the Bank of England, was already under pressure to follow suit with a cut.

Businesses across the country have already reported sharp falls in custom, as tourist numbers dry up and more people stay home, and are making preparations for widespread self-isolation.

The FTSE 100 tumbled by 8% on Monday, in one of the biggest single-day falls since the financial crisis, with coronavirus fears and an new oil war between Russia and Saudi Arabia denting the markets and economy.

The British Chambers of Commerce director general, Dr Adam Marshall, said: "Businesses will welcome the decisive action taken by the Bank of England to support the economy at this delicate moment.

"The Bank and UK financial institutions must now work together to ensure that these policy measures translate into real-world support for firms on the ground."