The BoE cut UK interest rates this morning by 0.5% to 0.25%.
Regular readers will know that this cut wasn’t a surprise to us. However, its timing was. We expected the cut to come at the next official BoE monetary policy meeting on Thursday 26 March 2020.
However, we see this as positive – as coming just before the Chancellor’s Budget Statement, suggests that the BoE and the government are working together with stimulus measures in order to shore up economic growth given the impending economic hit from the spread of the coronavirus.
Rishi Sunak’s, the Chancellor of the Exchequer, first Budget was very interesting – and clearly a tricky Budget, not to mention a coronavirus Budget!
When he took over as Chancellor on Thursday 13 February 2020, the world was a completely different place and he probably started planning for a post-Brexit Budget with a huge increase in infrastructure spending, but the coronavirus outbreak has completely changed the economic outlook – as the former heavyweight boxer, Mike Tyson said “everyone has a plan until they get punched in the mouth”.
As a result, Rishi Sunak had to fill his red Budget box with a number of vaccines to help the economy cope with the shock and negative effects of the coronavirus outbreak, including the abolishing of business rates for shops, restaurants and cinemas as they are particularly vulnerable to coronavirus; the waiving of business rates this year for some hospitality and leisure companies; covering statutory coronavirus sick pay for up to 14 days; a coronavirus business interruption loan Scheme; and grants for small businesses.
However, next month’s cut in corporation tax from 19% to 17% is being scrapped.
All eyes will now be on the European Central Bank, as today’s UK stimulus package may force them into action when they meet tomorrow (Thursday 12 March 2020) and Donald Trump who is expected to unveil an economic aid package in the coming days.
Together, if co-ordinated and coherent, this could be a “do whatever it takes” moment that is needed to support the global economy and global equity markets.
Investment Management Team