As days in UK finance go, they don’t come much bigger than March 11, 2020.
The starting gun fired at 7am, with the Bank of England announcing a 0.5 percentage point cut to interest rates, bringing them down to the rock-bottom rates last seen in the financial crisis.
Outgoing Bank of England Governor Mark Carney said the move was a targeted and co-ordinated move with government offices, including the Treasury, to try and ease the UK economy through the coming months as the Coronavirus takes hold across the world.
The move mirrored that made by the US Federal Reserve last week, which resulted in a stock market sell off, the likes of which had not been seen since the days following the collapse of Lehman Brothers.
Mr Carney said lowering interest rates would allow UK citizens and businesses to borrow to get them through tough time ahead at rates that should be relatively easy to swallow.
It seems international central banks and governments are under no illusions that both the Coronavirus and the measures that will have to be taken to prevent it spreading could inflict serious damage on business and the economy.
A self-isolating workforce will not just impact supply chains and production lines, but entertainment and leisure industries, with experts foreseeing some companies struggling to survive.
These sentiments were echoed a couple of hours later, as the Chancellor, who arrived in Number 11 Downing Street just a month ago, delivered a budget speech announcing a fiscal stimulus package for the UK economy as a direct countermeasure to the Coronavirus.
Rishi Sunak, a former hedge fund manager turned Yorkshire MP, said Coronavirus would have a “significant”, but “temporary” impact on UK economy and that the NHS would get whatever funding it needs — be it “millions or billions”.
But despite the good intentions and attempt at reassurance, the stock market did not like any of it. Between standing up to deliver the speech and sitting down, Mr Sunak saw the FTSE100 fall 1% to 5,935 points. However, the index of the UK’s largest companies had already fallen 1.2% since soaring almost 2% after the BoE’s announcement earlier in the day.
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The Chancellor said the outlook for the UK’s growth had been revised down to 1.1%, but this did not account for any impact of Covid-19, which leaves financial markets uneasy.
Unlike the banking crisis, which, although catastrophic in some cases, was largely quantifiable, a rapidly spreading, potentially fatal virus is difficult to model financially. This partially explains why the FTSE has fallen more than 1,600 points – or 20% — in the last month. Add in a brawl over oil prices by two of the world’s largest producers and markets get even more jittery.
There are some bright spots, however, and the Chancellor threw some crumbs to support certain sectors. Bars and restaurants receive a reprieve, with an intended increase on spirits duty and beer duty cancelled. The Treasury also raised the discount on business rates for pubs from £1,000 to £5,000 as they may struggle with a self-isolated clientele.
Duty has been frozen on fuel again – which could be a boon to some industries if the current low oil price continues and filters through to the pumps – with the National Insurance threshold increasing, potentially taking pressure of employers’ wage bills.
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