UK interest rates cut, funds freed up to ease virus impact

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People wearing face masks stand in Piccadilly Circus, London, Saturday, March 7, 2020. A man in his early 80s has become the second person to die in the UK after testing positive for the coronavirus. (Yui Mok/PA via AP)

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LONDON (AP) — Britain took dramatic steps on Wednesday to cushion the economic shock of the coronavirus outbreak, as the government announced a 30 billion-pound ($39 billion) package of measures to keep individuals and businesses afloat and the Bank of England slashed its key interest rate to a record low of 0.25%.

U.K. Treasury chief Rishi Sunak said the new virus sweeping the globe — arguably the biggest economic shock since the global financial crisis 12 years ago — would have “a significant impact on the U.K. economy, but it will be temporary.”

“We are doing everything we can to keep this country and our people healthy and financially secure,” Sunak said. “We will get through this together.”

In the government’s annual budget, Sunak announced measures including extra funding for the health service, sped-up sick pay and benefits payments for people who are off work, and relief for struggling businesses.

He said the government would refund the cost of sick pay to firms with less than 250 employees and would provide cheap loans for small businesses struggling because of the COVID-19 illness.

Sunak said the measures, which include 7 billion pounds for people and businesses and 5 billion pounds for the health service, would “protect the vast majority of businesses through the worst of the crisis.”

In a coordinated move, the Bank of England earlier reduced its key rate from 0.75% to 0.25% to “help support businesses and consumer confidence at a difficult time.”

The cut took the rate to a low last reached after Britain’s June 2016 vote to leave the European Union.

The cut follows similar reductions from the U.S. Federal Reserve and the Bank of Canada. The European Central Bank is also expected to announce a package of stimulus measures Thursday.

In contrast to Italy, the epicenter of Europe’s outbreak with 10,100 cases, Britain has 456 confirmed cases of COVID-19 and six deaths. But the outbreak has already affected the U.K. economy, hitting tourism and clogging up the global supply chains that many modern businesses rely on. Sunak said that when the outbreak peaks in Britain in the coming weeks, up to 20% of workers could be off sick or in self-quarantine.

Growth projections have been slashed for all major world economies as the virus halts production and dents business and consumer confidence. Global stock markets have suffered their biggest daily losses since the height of the global financial crisis in 2008.

In addition to the rate cut, the Bank of England announced a package of measures it hopes will keep money flowing through the economy. It unveiled a funding scheme to help small- and medium-sized firms and slashed to zero from 1% the amount of capital banks have to keep in reserve, a move designed to bolster lending.

Outgoing Bank of England Governor Mark Carney said the measures could make hundreds of billions of pounds (dollars) available to firms and financial institutions.

“These measures will help keep firms in business and people in jobs,” Carney told a press briefing. “This is a big, big, package.”

Andrew Bailey, who succeeds Carney as governor on Monday, said the bank could do more in coming weeks if needed, including cutting rates further.

He downplayed concerns that the virus emergency could be as damaging economically as the global financial crisis, largely because banks are in better health now.

“There is no reason of this shock to turn into the experience of 2008 and a lost decade in economies if we handle it well,” he said.

Emergency coronavirus measures dominated the government’s annual budget, the first to be delivered since the U.K. left the European Union. Britain’s economic outlook is already weighed down by uncertainty about the U.K.’s future relationship with the EU.

Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, said the new measures “won’t prevent GDP from falling sharply over the next couple of months, but together with the Bank of England’s response earlier today, it greatly improves the chances that the U.K. economy rebounds in the second half of this year.”

Despite the stormy economic climate, Sunak announced many costly measures on top of the virus-related stimulus, including 5.3 billion pounds for flood defenses and a major new science research and development program.

The budget also included billions in infrastructure spending designed to boost the economy in poorer parts of the country — a key promise of Prime Minister Boris Johnson. He said the level of public net investment would be triple the average over the last 40 years.

“Broadband, railway, roads — if the country needs it, we will build it,” he said.

There were few obvious revenue-generating measures in the budget to pay for the plans, but Sunak said the government would stick to its self-imposed rule barring new borrowing for day-today spending.

As Sunak presented his budget to hundreds of lawmakers in the cramped House of Commons chamber, the new coronavirus moved closer to the heart of the British government.

Nadine Dorries, a minister in the Department of Health, said she was self-isolating as she recovers from the virus. Health officials were tracing those who had been in contact with Dorries over the past week, when she worked in Parliament, held meetings with constituents and attended an International Women’s Day reception with the prime minister.

Parliamentary officials said that there were no plans to close Parliament, where thousands of people work in an aging, crowded complex of buildings.


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