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Bank of England injects £1.9bn into UK companies via coronavirus scheme

The Bank of England has injected £1.9bn into UK companies since 23 March via its short-term lending programme, figures have shown, as it tries to shore up the economy amid the coronavirus outbreak.

The lending comes via the Bank’s covid corporate finance facility (CCFF), through which it buys companies’ short-term debt, known as commercial paper.

The CCFF is a key plank of the government’s £330bn coronavirus lending programme. It hopes the money will mitigate disaster for the economy during the coronavirus pandemic.

Threadneedle Street has unveiled a range of other measures to boost the economy. These include slashing interest rates to 0.1 per cent, a record low, and pledging to buy £200bn more government and corporate bonds.

Following the playbook from the 2008 crisis, the Bank has also reopened “swap lines” with the US Federal Reserve. UK banks claimed $6bn (£4.8bn) yesterday via this facility to help ease the pain on their balance sheets.

The uptake for the CCFF comes as warnings grow about the effect of coronavirus on the global and UK economies.

Ratings agency Fitch today predicted the UK economy will shrink by 3.9 per cent in 2020. And figures yesterday showed claims for benefits via Universal Credit soared to 950,000 in the last two weeks.

Worries over access to lending

The government and BoE have been criticised for some confusion about the lending schemes on offer, however.

Business groups such as the CBI have said some firms are “falling through the cracks”. They say some businesses do not have the “investment grade” credit rating needed to access the CCFF, but are too big for the other loan programmes on offer.

S&P Global Ratings told City A.M. that it had received around 30 enquiries by Monday from UK firms that hope to be rated investment grade – at low risk of default – so as to access the CCFF.

But S&P’s head of EMEA sales Lynn Maxwell said that “less than 25 per cent” of the firms expressing interest “have investment grade potential”. She added that it is “early days,” however.

Chancellor Rishi Sunak has promised to help broaden the reach of UK loan programmes. He has said the government is working on making sure all companies can get the help they need.

By Harry Robertson

Source: City AM

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Bank of England extends emergency liquidity measure

The Bank of England said today it would extend an emergency liquidity measure, the three-month Contingent Term Repo Facility (CTRF), to run until the end of April and it would also hold a one-month CTRF operation each week until 1 May.

The Bank reactivated the facility last week as part of its attempts to keep financial markets running smoothly during the coronavirus crisis.

“The Bank will continue to monitor market conditions carefully and the operation of the CTRF remains under review,” it said in a statement today. “The Bank stands ready to take additional action if necessary.”

The Bank said the move was “a further precautionary step to provide additional flexibility in the Bank’s provision of liquidity insurance over the coming months”.

It said CTRF operations will run in addition to its regular liquidity insurance facilities including the Indexed Long-Term Repo and Discount Window Facility.

Other measures the Bank has taken to tackle the coronavirus-triggered economic crisis include cutting interest rates to a record low of 0.1 per cent to help pump liquidity into the economy.

It has also ramped up bond-buying, pledging to purchase £200bn more debt.

The Bank’s new governor Andrew Bailey took over the top job earlier this month at a time of economic turmoil across the globe.

The economic paralysis that has followed in the wake of the coronavirus outbreak has sent stock markets crashing and left many companies and their workers on the brink.

By James Booth

Source: City AM

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Coronavirus: Bank of England holds rates but paints gloomy economic picture

The Bank of England has kept interest rates on hold at the record low level of 0.1 per cent but signalled it is prepared to take further action to tackle the effects of coronavirus.

The Bank’s monetary policy committee (MPC) today said it “stands ready to respond further as necessary to guard against an unwarranted tightening in financial conditions, and support the economy”.

Threadneedle Street also gave a gloomy assessment of the economy. The MPC said: “The economic consequences of [coronavirus] are becoming more apparent and a very sharp reduction in activity is likely.”

The Bank slashed interest rates to 0.1 per cent at two emergency meetings over the last two weeks. That is the lowest interest rates have ever been in the Bank’s 325-year history.

The rate cuts were designed to pump liquidity into the economy during the coronavirus outbreak. It is also meant to shore up lending and balance sheets.

The BoE has also ramped up its bond-buying, pledging to purchase £200bn more debt. It said today it will continue with this quantitative easing. The Bank added: “If needed, the MPC can expand asset purchases further.”

On top of this, the Bank has cut so-called capital buffers for banks, giving them more cash to lend. It will also buy companies’ short-term debt.

The Bank of England today decided to maintain current policy for the time being. But it said it is prepared to take further action if needed.

The MPC added that it is looking at “the pass-through to banks and building societies’ lending rates of the recent reductions in bank rate”.

Ensuring the extra liquidity reaches the right firms has been a concern of the Bank. It yesterday sent a letter to banks, along with the government and the City watchdog, telling them to keep lending to businesses to ensure that previously viable companies do not fail due to the crisis.

Risk of ‘longer-term damage to the economy’

The Bank of England today gave a stark assessment of the outlook for the UK economy. However, it warned predictions were currently deeply uncertain.

“There is a risk of longer-term damage to the economy, especially if there are business failures on a large scale or significant increases in unemployment,” the MPC said.

“There is little evidence as yet to assess the precise magnitude of the economic shock from Covid-19. It is probable that global GDP will fall sharply during the first half of this year. Unemployment is likely to rise rapidly across a range of economies, as suggested by early indicators.”

Paul Dales, chief UK economist at consultancy Capital Economics, said: “After unleashing unprecedented support in two emergency meetings over the past two weeks, the Bank of England took a break today.”

However, he said that if stress starts to show in the UK’s bond markets, “expect the Bank to do more by providing more liquidity and/or increasing its asset purchases”.

He suggested the BoE might follow the US Federal Reserve and “announce open-ended asset purchases”.

By Harry Robertson

Source: City AM

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Bank of England will ‘closely’ monitor credit to economy amid coronavirus crisis

The Bank of England’s Financial Policy Committee (FPC) said it will “monitor closely” the credit conditions facing the economy amid the coronavirus pandemic, and stands ready to take further actions if needed.

In minutes from recent meetings released this morning, the Committee said it “stands ready to take any further actions deemed appropriate to support UK financial stability”.

It described the “nature and global impact” of the shock caused by coronavirus and the speed with which it has spread as “unprecedented in recent history”.

The FPC said it “judges that major UK banks are well able to withstand severe market and economic disruption”, having “built up the resilience of the UK financial system over recent years”.

It also deems “household vulnerability is considerably lower than before the financial crisis”.

The Bank of England has twice slashed interest rates in response to the coronavirus outbreak, with the Bank’s main rate reaching a record low of 0.1 per cent.

The BoE has also launched a £200bn money-printing programme in a bid to calm panicked markets and support the economy.

Its FPC and Monetary Policy Committee (MPC), has also introduced measures to reduce financial stability risks associated with the pandemic and to keep credit flowing into the economy.

These include cutting the UK’s countercyclical capital buffer rate to zero per cent of banks’ exposure to UK borrowers, in the hope this would release up to £190bn of bank lending to businesses. The rate had been at one per cent and was due to reach two per cent by the end of the year.

Last week, the BoE cancelled this year’s stress tests of major banks in Britain and pushed back the implementation of new capital rules to help banks focus on supporting customer lending during the pandemic.

The FPC said today that the UK’s major banks have Tier 1 capital levels — a key measure of financial strength — over three times higher than before the global financial crisis.

“Businesses and households should be able to turn to the banking system to meet their need for credit to bridge through this period of economic disruption.”

It added that it “will monitor closely the response of banks to these measures as well as the credit conditions faced by UK businesses and households more generally”.

By Anna Menin

Source: City AM

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Bank of England Slashes Interest Rates Again, to Record Low of 0.1%

The Bank of England cut interest rates for the second time in two weeks, to bolster the economy against the coronavirus epidemic.

The latest cut, announced Thursday, took interest rates from 0.25% to 0.1%—the lowest level in the Bank’s 325-year history.

The bank also increased its quantitative easing stimulus package, buying an additional £200 billion of UK government and corporate bonds to pump cash into the economy and keep down the cost of borrowing.

New governor Andrew Bailey, who took over from Mark Carney just Monday, said the measures were designed to calm markets spooked by the mounting death toll from COVID-19, crises in other economies and rumours that London will soon be forced into complete lockdown.

“The obvious increase in the pace and severity of Covid-19, which has built during the week, was something we had to assess and respond to, we can’t wait for the hard economic data before we act,” he said.

Markets reacted optimistically to the news, with the FTSE ending the day up 1.4% and the pound rising against the dollar.

The cut in interest rates and quantitative easing are “highly unlikely to highly unlikely to prevent a sizeable hit to [UK] GDP this year,” analysts at Japanese investment bank Nomura said. But they added, “there can be no question that the monetary and fiscal authorities are throwing everything they can at this problem to support firms and households, cushion demand as much as is reasonably possible, and to reduce the long-term hit to supply.”

However, there will be questions about what further action the Bank of England can take, after Bailey reiterated his reluctance to use zero or negative interest rates.

Bailey said the Bank was considering further monetary boosts it could make. “We are not done. The Bank of England will do what the public needs in the days and weeks ahead.”

As interest rates plunged, some lenders moved quickly to withdraw tracker mortgages from the market.

Henry Jordan, Mortgage Director at Nationwide, said: “With a second cut in interest rates in just over a week, bringing Bank Rate down to an unprecedented 0.1%, we have taken the decision to temporarily withdraw all of the society’s residential tracker mortgages from sale.”

Other lenders, including Barclays, HSBC and Santander, said they would reduce their tracker and variable rate mortgages in line with the new Base Rate.

Among HSBC’s tracker mortgages is a two-year deal which charges just 0.64% above the Bank of England base rate. Now pegged at 0.74%, the deal is believed to be the lowest interest rate ever offered for new mortgages. It’s available to buyers with a 40% deposit, on properties worth up to £5 million—but buyers will need to act quickly. Brokers expect it too will be withdrawn from the market by next week.

Broker Aaron Strutt of Trinity Financial said the recent cuts had demonstrated the value of tracker mortgages. “About 95% of mortgages are on a fixed-rate basis, but if you’d taken out a tracker a couple of months ago your rate would have effectively halved.”

Source: Money Expert

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Bank of England could lower rates further to shield against coronavirus hit

The Bank of England is expected to further cut interest rates and restart quantitative easing to ease the impact of coronavirus on the economy, as former Financial Conduct Authority (FCA) chief Andrew Bailey replaces Mark Carney as governor.

Bailey starts his new job today and is now tasked with steadying the economy against a shock from the outbreak.

One of his first moves could be to cut interest rates as low as 0.1 per cent in the coming weeks, economic experts have predicted.

The Bank of England last week cut interest rates to 0.25 per cent from 0.75 per cent.

And further measures aimed to shore up banks and the economy were yesterday announced by the Bank of England, in a coordinated move with the Canadian, European, US, Japanese and Swiss central banks.

Monetary policymakers have essentially cut the cost and increased the volume of loans it can provide to banks in US dollars, as the US Federal Reserve cut US interest rates over the weekend.

Paul Dales, chief UK economist at Capital Economics, said: “The coordinated action to boost liquidity for banks announced late last night by the Bank of England is designed to prevent the current coronavirus health and economic crisis from spiralling into a full blown financial crisis.

“The idea is that this will nip in the bud last week’s signs that banks are becoming less willing to lend to each other in money markets, which is what caused major problems during the financial crisis.

“We know that a big economic hit is coming, but can only speculate about its size and duration. For what it’s worth, we think a short-term hit to GDP of around 2.5 per cent is possible. While we think (hope) that a financial crisis, which would deepen and lengthen that hit, will be avoided, we do think the Bank of England will have to do more by cutting interest rates by a further 15bps to 0.10 per cent and restarting quantitative easing.”

Samuel Tombs, chief UK economist at Panetheon Macroeconmics, agreed the Bank of England is likely to announce new stimulus measures.

He said: “The Monetary Policy Committee (MPC) might be worried that if they overcook stimulus now and add to the downward pressure on sterling, they will only make life more difficult next year.

“But no one can be confident at this stage that the temporary shock from the coronavirus will not evolve into a self-perpetuating downward spiral in demand, reinforced by falling asset prices and tightening credit conditions.

“The near-term bout of low inflation also might have lingering counterproductive effects on inflation expectations and wage growth, if confidence is not shored up soon.

“So despite the medium-term outlook for inflation, we expect the MPC to cut Bank Rate to its effective floor of 0.10 per cent, from 0.25 per cent, at its scheduled meeting on March 26, and then to restart its QE programme at its meeting on May 7.”

Written by: Lana Clements

Source: Your Money

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Bank of England sees options to boost UK economy further as coronavirus hits – minutes

The Bank of England has the option to cut interest rates further and ramp up asset purchases to help lessen the economic shock of the coronavirus outbreak, minutes from this week’s emergency policy meeting showed on Friday.

On Wednesday the BoE cut its main interest rate by half a percentage point to a joint-record low of 0.25%, as COVID-19, the flu-like infection caused by the virus, spreads rapidly, stoking fears of global recession and roiling markets.

The minutes from the Monetary Policy Committee’s (MPC) meeting stuck closely to the message given on Wednesday by BoE Governor Mark Carney and his successor Andrew Bailey.

“Should the MPC need to provide further monetary stimulus, there were a number of options at its disposal, including cutting Bank Rate further, enlarging the TFSME (Term Funding scheme with additional incentives for Small and Medium-sized Enterprises), and expanding asset purchases,” the minutes said.

Rate-setters said the effects on demand from the coronavirus outbreak were likely to be significant.

“People who were isolated at home would probably spend less. Others might cut back on forms of consumption that could be delayed or involved social activities,” the minutes said.

The BoE said there was little hard evidence right now about the impact of the outbreak on the economy, but that officials would learn more over the coming weeks and months.

The minutes also said rate-setters would consider the impact of Wednesday’s government budget — and the large increase in public spending contained in it — at its next scheduled meeting on March 26.

Reporting by Andy Bruce, editing by David Milliken

Source: UK Reuters

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Bank of England Slashes Interest Rates to Bolster Economy During Pandemic

The Bank of England has announced an emergency cut to interest rates in an effort to limit the economic impact of the coronavirus pandemic.

In its first emergency meeting since the 2008 financial crisis, the monetary policy committee voted unanimously on Tuesday to slash the base rate from 0.75% to 0.25%.

The Bank said the cut was in response to the “economic shock” of the COVID-19 outbreak and would “help to support business and consumer confidence at a difficult time, to bolster the cash flows of businesses and households, and to reduce the cost, and to improve the availability, of finance.”

Mark Carney, outgoing governor of the Bank, said the economic damage of the virus wasn’t clear yet but suggested the UK economy could shrink in the coming months. Policymakers had already witnessed a “sharp fall in trading conditions,” including in spending on non-essential goods, he said. Other nations are experiencing similar slowdowns and the Chinese economy, the world’s second-largest, is forecast to contract in the first quarter.

However, he said the downturn wouldn’t be as severe as the recession which strangled the UK economy in 2008-09. “There is no reason for it to be as bad as 2008 if we act as we have, and if there is that targeted support.”

The cut was announced on Wednesday, in tandem with Chancellor Rishi Sunak’s budget, which included billions of pounds of measures to support the economy during an extended outbreak of the virus.

The steps were coordinated to have “maximum impact,” Carney said.

The cut takes interest rates back to their lowest level in the Bank’s 325-year-history. Rates were previously cut to 0.25% in August 2016 and subsequently raised in increments in November 2017 and August 2018.

The cut will reduce savers’ yields but benefit some homeowners and those looking to remortgage or purchase a new property. The approximately 10% of homeowners with tracker mortgages will see their monthly repayments fall quickly. Lenders are also expected to respond to their lower borrowing costs—and to tumbling swap rates—by slashing mortgage rates.

When the base rate was last 0.25%, some banks offered two-year fixed-rate mortgages for less than 1%, although borrowers needed a large deposit to qualify. Currently, the best two-year fixes are from NatWest (1.19%) and Barclays (1.21%) but better offers will surely follow.

Mark Harris, chief executive of the mortgage broker SPF Private Clients, said: “This is a bold and decisive move from the Bank of England. Swap rates have tumbled in recent days and both the reduction in base rate, plus lower swap rates, will lead to even cheaper mortgage products.”

Consumers can expect already melting savings rates to fall even further and the best deals to be withdrawn from the market. Customers using savings accounts at high-street banks are already reaping historically low interest rates—usually of below 0.5%—leaving banks with little room to trim them further. But while rates on mainstream accounts are unlikely to dip into the negatives, as they have on some accounts in Denmark and Switzerland, they could flatline at 0%.

Source: Money Expert

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Bank of England cuts base rate back to 0.25% due to coronavirus

The Bank of England has made an emergency base rate cut of 0.50% to deal with the economic shock caused by the coronavirus outbreak.

This brings the interest rate from 0.75% to 0.25%.

The Bank’s Monetary Policy Committee was due to meet on March 26, but met yesterday at a special meeting to unanimously make the decision.

Tracker and variable mortgage rates may fall as a result, though it’s unclear whether they will all fall by 0.50% owing to the ’emergency’ nature of the cut.

Fixed rates may also see some reductions in the next few weeks.

This is the first cut in the base rate since 2016, when it fell from 0.50% to 0.25%.

BY RYAN BEMBRIDGE

Source: Property Wire

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UK: Rate cut coming as consumption risks build

Like everywhere else, there is a rising risk that the Covid-19 demand shock will cause a decrease in GDP in the second quarter. We expect the Bank of England to cut interest rates later this month, although the bigger focus for markets should be the forthcoming budget, which arguably offers greater scope to tackle the virus impact.

Coronavirus supply shock risks morphing into demand issue

Since December’s election, the UK economy had been showing some tentative signs of life. Confidence had increased, and there were tentative signs that business activity was rising – albeit perhaps not quite to the same magnitude that some surveys had suggested.

But that’s now likely to change. As we’ve seen in other developed economies, supply chains have been disrupted by issues with sourcing Chinese-made components. Our trade team estimates that around 0.8% of UK output is reliant on value-added from China, although this is unsurprisingly higher for the electronics/electrical equipment industries at around 4%. While the former number may not sound too high, it masks the fact that subsequent parts of the production process may not be able to operate without overseas components. PMIs suggest there are increased delays for manufacturer deliveries.

Like the US, we estimate that roughly 20% of consumer spending is more exposed

The question now facing policymakers is how large the demand shock might be, now that the government is expecting a wider outbreak of the virus in the UK. Incoming Bank of England Governor Andrew Bailey said on Wednesday that “what we need frankly is more evidence than we have at the moment”, explaining perhaps why policymakers opted against joining the Federal Reserve in a coordinated rate cut.

Like the US, we estimate that roughly 20% of consumer spending is more exposed – things like restaurants/cafes (which make up 7%), hotels, transport, among other things. But unlike America, consumer activity has already been fragile for the past couple of years.

Consumer goods/services most exposed to virus impact

Admittedly confidence has recovered a little since the turn of the year, and real wage growth should be stronger this year, buoyed by a combination of lower regulated household energy bills and a tight jobs market.

However, the UK household savings ratio – currently 5.4% – is lower compared to historical standards, and has fallen over recent years, partly following the rise in import costs following the Brexit referendum. That’s quite a bit lower most international peers – the likes of France, Germany and the Netherlands have savings ratios comfortably above 10%.

There has also been a lot of focus in the media about the UK’s lower statutory sick pay levels. Employers are obliged to pay an amount equivalent to a little under 20% of the UK’s average salary if an employee is unwell – or in this case, self-isolating. Policies vary considerably across Europe, but according to an EU report, the rate of income replacement from sickness benefits/rules in the UK is one of the lowest. Sick pay also doesn’t apply for self-employed workers, and in the UK has a slightly higher rate of self-employment than the EU average.

Fiscal and monetary action is coming

This all suggests risks to consumer spending, and we are pencilling in a contraction during the second quarter (although of course, this depends on how far the virus was to spread). To us, this suggests the Bank of England will cut rates by 25 basis points at its next meeting later in March. However, policymakers will be looking closely at the forthcoming budget, where there arguably will be greater scope to limit the economic fallout.

Like other central banks, BoE officials will be acutely aware that there is only so much their own policy announcements can do to solve what is more of a cash flow risk for firms, rather than a debt-serving issue for firms affected by the virus

Following the change in Chancellor, there was a lot of excitement among investors that the Treasury was poised to offer a large amount of fiscal stimulus. It is likely that the government will commit to substantially raise government investment over the coming years, but the Chancellor is much more constrained on day-to-day spending. A fiscal rule, which commits the government to balance current spending in two-to-three years offers very little headroom to lift spending without taxes – particularly given the extra costs associated with managing Covid-19.

The government has already announced it could expand its “Time to Pay” system, which allows struggling firms to pay back tax bills over a longer period of time in smaller instalments. Andrew Bailey also implied there was a joint Bank of England/Treasury programme in the works to give SMEs access to extra finance.

Like other central banks, BoE officials will be acutely aware that there is only so much their own policy announcements – which may also include some other credit easing measures – can do to solve what is more of a cash flow risk for firms, rather than a debt-serving issue for firms affected by the virus.

By James Smith

Source: ThinkIng