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The Monetary Policy Committee of the Bank of England , meeting urgently yesterday to respond to the crisis caused by the coronavirus, unanimously decided to reduce the reference interest rate by 50 basis points, up to 0.25%, as well as adopt a series of measures to support the economy, including the elimination of the countercyclical mattress required of banks and the establishment of a liquidity line to grant loans to SMEs.

"The role of the Bank of England is to help UK businesses and households manage an economic shock that could be deep and prolonged, although it should be temporary," the British issuing institute said in a statement.

In addition to the interest rate cut, Committee members voted unanimously in favor of the introduction of a new line of credit aimed at facilitating loans to SMEs and will be financed by issuing reserves from the central bank, which it hopes will provide 100,000 million pounds (113,840 million euros).

Likewise, the members of the monetary committee of the BoE have voted in block at the time of maintaining the issuance of central bank reserves in 10,000 million pounds (11,243 million euros) to finance the purchase of corporate debt, as well as to continue with the program of 435,000 million pounds (489,000 million euros) for the purchase of sovereign bonds.

Reduce the capital cushion

On the other hand, the BoE Financial Policy Committee has decided to reduce, with immediate effects, from 1% to 0% the countercyclical capital buffer required of the United Kingdom entities, which was expected to reach 2% in December 2020, which will release about 190,000 million pounds (216,391 million euros) to the economy.

The Financial Committee of the Bank of England plans to maintain this ratio of 0% for at least a period of 12 months , so no increase would take effect at least before March 2022.

"These measures will help businesses and people in the United Kingdom continue to work and help prevent a temporary disruption from causing long-term economic damage," the central bank said.

In this regard, the entity still chaired by Mark Carney has warned that, despite the uncertainty about the impact of Covid-19 on the economy, there will probably be a "material" weakening of activity in the United Kingdom in the coming months .

Temporary, but significant, interruptions of supply chains and weaker activity could jeopardize cash flows and increase demand for short-term credit from households and working capital by companies, explained the institution, which considers these problems to be more serious for small businesses. "This economic shock will affect both demand and supply in the economy," he warned.

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  • United Kingdom
  • economy
  • Coronavirus
  • Covid 19

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