Monday, 7 Oct 2024

Interest rate cuts to save UK businesses as towns will soon be on coronavirus lockdown

Former Justice Secretary David Gauke welcomed the Bank of England’s decision as he told TalkRADIO’s Julia Hartley-Brewer Britons will soon have to substantially change the way they live because of coronavirus. The Tory MP argued “large parts of the country are going to be more or less on lockdown” as he predicted the Government’s soon-to-be-announced budget will be fundamentally different. 

He said: “It is important that every lever is pulled. We’re going to go through pretty tumultuous few months for the economy and so monetary support is important.

“It’s not just the interest rates, I think it’s also the fact that they’re clearly sought some encouragement for further lending changing some of the rules of how banks operate and it will make it easier for businesses to get the credit they’re going to need over a period of time when their cash flow for many of them is going to be right down.”

He added: “I think the budget will fundamentally change.

“Normally, the first budget in a parliament is a big opportunity for the Government to set up its goal, what it’s going to do over the next four or five years.

“To some extent, there will still be plenty of that and clearly if we think about the infrastructure spending that is going to occur in this parliament.

“But in truth, this budget is about the coronavirus and it is about the short term measures to help the economy get through the next few months when it is likely that large parts of the country are going to be more or less on lockdown.

“We’re going to see substantial changes in the way that we live for a relatively short period.”

Policymakers have reduced rates to 0.25 percent from 0.75 percent, taking borrowing costs back down to the lowest level in history.

The Bank economic activity is likely to weaken material over the coming months, and significant disruption to supply chains could challenge cash flows.

The Bank of England told banks on Wednesday they can tap one of their capital buffers to maintain lending during the coronavirus epidemic but warned they must not use the cash for bumping up bonuses or dividends.

Insurers were also offered relief on the long-term phase-in of new capital rules.

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The BoE’s Financial Policy Committee said that for banks it was cutting the so-called countercyclical capital buffer (CCYB) to 0 percent, reversing a decision last year to raise it from 1 percent to 2 percent by the end of 2020.

The release of the buffer will support up to 190 billion pounds of bank lending to businesses, equivalent to 13 times banks’ net lending to businesses in 2019, the BoE said.

“The FPC expects to maintain the 0% rate for at least 12 months, so that any subsequent increase would not take effect until March 2022 at the earliest,” the BoE said in a statement.

“Although the disruption arising from COVID-19 could be sharp and large, it should be temporary.”

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