UK launches $39bn stimulus, shock rate cut to combat coronavirus

UK launches $39bn stimulus, shock rate cut to combat coronavirus
Britain’s Chancellor of the Exchequer Rishi Sunak poses with the Budget Box as he leaves 11 Downing Street on Mar. 11, 2020 ahead of the announcement of Britain’s first post-Brexit budget. (AFP)
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Updated 11 March 2020

UK launches $39bn stimulus, shock rate cut to combat coronavirus

UK launches $39bn stimulus, shock rate cut to combat coronavirus

LONDON: Britain's government and the Bank of England on Wednesday launched a coordinated emergency response to the country's "significant but temporary" economic impact from the coronavirus, pledging fiscal stimulus worth £30 billion ($39 billion) and slashing interest rates to a record-low 0.25 percent.
The effects of COVID-19 "will have a significant impact on the UK economy - but it will be temporary", finance minister Rishi Sunak told parliament as he announced a stimulus package, notably to help small businesses struck down by disruptions to supply chains and an absent workforce.
There is likely to be a "temporary disruption" to the economy while up to a fifth of the UK's working-age population could be off sick at any one time, Chancellor of the Exchequer Sunak warned.
On Tuesday, it was revealed that a minister in the health department, Nadine Dorries, had tested positive for COVID-19.
Six people have died in Britain from the virus, with more than 370 confirmed cases.
"I am announcing today in total a £30-billion fiscal stimulus to support British people, British jobs and British businesses through this moment," said Sunak on delivering the government's first post-Brexit budget, one that was dominated by action to tackle the coronavirus crisis.
"If further action is needed if the situation evolves... I will not hesitate to act," added the 39-year-old finance minister in an hour-long speech outlining also plans for big UK infrastructure projects.
The Bank of England earlier revealed that at an extraordinary meeting on Tuesday, "the Monetary Policy Committee voted unanimously to reduce Bank Rate by 50 basis points to 0.25 percent" - its biggest cut since the global financial crisis more than a decade ago.
The reduction from 0.75 percent headed a "package of measures to help UK businesses and households bridge across the economic disruption that is likely to be associated with COVID-19", the central bank added in a statement.
The BoE "will take all necessary further steps to support the UK economy and financial system" from the coronavirus fallout, governor Mark Carney told a press conference.
Carney added that the British central bank would continue to coordinate closely with international counterparts.
The BoE noted that "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".
Looking ahead, "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", it added, shortly before official data showed Britain's economy flatlined in January.
"Such (supply) issues are likely to be most acute for smaller businesses," the bank warned.
BoE policymakers voted also at Tuesday's meeting to allow retail banks in Britain to provide cheap lending to businesses, aided by central bank reserves.
Sunak meanwhile presented the country's first annual budget statement since Britain departed the European Union on January 31 - and after his predecessor Sajid Javid resigned unexpectedly last month.
The chancellor, who had been Javid's deputy, was promoted when his boss quit rather than accept Prime Minister Boris Johnson's demand to sack all his political advisers.
Johnson wants greater say over Treasury policy following his election victory that ended more than three years of political wrangling over Brexit and allowed Britain to finally quit the EU less than six weeks ago.
To date, the divorce has resulted in more than £4.0 billion in extra government spending.
Britain and the EU have begun negotiations on a new trade deal but only have until December 31, when a post-Brexit transition period ends, to nail down the details.