The Bank of England has cut UK interest rates in an emergency move.The monetary policy committee voted unanimously to slash the bank rate by 50 basis points from 0.75% to 0.25%, at an unscheduled meeting held on Tuesday 10th March 2020.

The interest cut comes as part of a wider package of measures unveiled by Mark Carney, in his final week as governor of the Bank of England, designed to dovetail with the chancellor Rishi Sunak’s budget due to be unveiled today Wednesday 11th March.

The Bank of England has also introduced a term funding scheme with additional incentives for small and medium-sized businesses, funded by central bank reserves, to help businesses amid the unfolding economic crisis. The bank said that the scheme could provide in excess of £100bn in term funding.

The Bank of England’s role is to help UK businesses and households manage through an economic shock. These measures will help to keep firms in business and people in jobs and help prevent a temporary disruption from causing longer-lasting economic harm.

With the UK facing the biggest financial threat in more than a decade amid fears the epidemic could cause a recession, the bank said the measures will help to support business and consumer confidence, bolster the cash flows of businesses and households, and reduce the cost and improve the availability of finance.

How does the Bank of England base rate work? 

When the Bank of England lends money to commercial banks, the banks must pay interest, and the amount is determined by the base rate. The base rate will also impact on ‘Swap’ rates, the interest rate banks charge when lending to each other. If the base rate rises or falls, lenders often pass these costs on to consumers by raising their own interest rates on loans or savings products. While that might sound complicated, it essentially means the base rate will impact on two areas of your finances: how much interest you can earn on your savings and how much it costs to borrow money.

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