BoE minutes reveal 'extraordinary circumstances' surrounding Bank Rate Cut

The Bank says that in "these extraordinary circumstances", it decided to act alongside HM Treasury to ensure that various initiatives would have maximum impact.

In this week's Budget, the Government introduced a package of measures including extra spending on the NHS; changes to Statutory Sick Pay rules; changes to the timing of welfare payments; and a number of other measures for businesses including Time to Pay and relief on business rates.

The Budget also announced a significant medium-term fiscal loosening, in addition to the short-term increase in public expenditure.

The Monetary Policy Committee (MPC) said that since its January meeting, risk appetite in global financial markets had deteriorated substantially, reflecting an escalation of concerns about the global impact of Covid-19.

Although the magnitude of the shock from Covid-19 is highly uncertain, the MPC judged it likely that activity would weaken materially over the coming months, affecting both supply and demand in the economy.

It believes that the impact is "likely to provide a sizable drag on activity in the coming months".

In its minutes, the MPC noted that some people would be unable to work for a period of time, affecting production, and that people who were isolated at home would probably spend less. There could also be substantial broader uncertainty effects, including on major purchases and for corporate investment plans.

The Committee unanimously agreed that "given the likely scale of the economic shock from Covid-19... a strong case could be made for a large reduction in interest rates". All MPC members agreed that a 50 basis point reduction in Bank Rate was warranted.

In its minutes, the MPC said: "This reduction in Bank Rate would 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 improve the availability, of finance."

However the Committee admitted that, even with these new policy measures, "there is likely to be a material near-term weakening of activity related to Covid-19".