'Limited impact': Here's what analysts are saying about the Bank of England's emergency rate cut
- In an emergency move, the Bank of England cut interest rates by 0.5% in response to the coronavirus outbreak.
- The central bank's monetary policy committee (MPC) voted unanimously to slash rates from 0.75% to 0.25%.
- Analysts expect the move to have a "limited impact" on the economy.
- Visit Business Insider's homepage for more stories.
The Bank of England cut its interest rates by 50 basis points to historic lows on Wednesday in order to deal with the growing uncertainty caused by the outbreak of coronavirus.
The central bank's monetary policy committee (MPC) voted unanimously to slash rates from 0.75% to 0.25% - following the Federal Reserve's 50-basis-point rate cut last week.
Analysts across the board cautioned the cut could have "limited impact." Here's what they said:
Adrian Lowcock, head of personal investing at investment platform Willis Owen:
"The idea is that lower interest rates should encourage spending as it costs less to borrow, while the Bank has also said it will relax capital rules for businesses, mimicking moves from other central banks including the Federal Reserve.
However, there are a number of reasons why this is unlikely to have much impact on consumer spending. With rates already low the difference is minimal and most mortgages are fixed rate so are not affected.
More importantly, the coronavirus has initially hit supply chains and interest-rate cuts will not change that. Likewise demand is being impacted because people are not going out and spending as much because they can't, not because they don't have enough money."
Richard Pearson, Director at EQi:
"The government might say that the intention is to stimulate economic demand as the coronavirus begins to impact the UK, but the move also allows the Bank to relax capital rules to free up billions of pounds to provide extra borrowing power to the economy.
For savers it's a pretty dire picture as already paltry rates will fall even further, while investors and pensioners will likely see the returns on their investments tumble as the markets react to the ongoing economic fall out of the virus."
Neil Wilson, chief markets analyst at Markets.com:
"The Bank of England fired its big bazooka today with a 50-basis-point cut to rates, but it's really an appetizer for the main course later. This takes the Bank base rate back to its all-time low at 0.25%. They're loosening rules around capital buffers for banks and estimate it will be worth £290bn in extra funding. The key question is whether banks will simply lend more? It needs to come with genuine commitment - as we saw with the RBS announcements yesterday."
Laura Suter, personal finance analyst at investment platform AJ Bell:
"This was a swift move from the Bank of England in an attempt to support the UK economy amid the coronavirus turmoil, but the unanimous vote to slash rates back to the lowest point in history will shock some at how quickly it happened. The move, which takes rates lower than in the financial crisis, is the first unscheduled interest rate change from the Bank of England since the banking crisis 12 years ago. The cut to 0.25% also leaves minimal ability to slash rates further in the future.
