The Bank of England has cut its base rate to a joint-record low of 0.1% - warning the coronavirus pandemic will result in a "sharp and large" economic shock.

Its rate-setting committee, led by new governor Andrew Bailey, also decided at its unscheduled meeting to re-start the post-crisis asset purchase programme, also known as quantitative easing.

The Bank said it would make an extra £200bn in bond purchases, effectively printing new money to push into the financial system, to support activity as the coronavirus crisis threatens to all but shut down the economy.

'It's an emergency' - BoE governor on virus

The new so-called Term Funding Scheme in support of small businesses was also raised.

The monetary policy committee (MPC) had cut Bank rate to 0.25% from 0.75% only a week ago.


It said the unanimous decision was part of moves "to meet the needs of UK businesses and households in dealing with the associated economic disruption."

The MPC is due to meet again next Wednesday as governments and central banks globally adjust to the deterioration in business activity as western economies descend into lockdown conditions.

Government pledges to steady the economy

The chaos has sparked panic selling on stock markets while the pound has fallen to levels against the US dollar not seen for 35 years.

It has, therefore, proved a baptism of fire for Mr Bailey who only took over from Mark Carney on Monday.

Mr Bailey told Sky News in an interview on Tuesday that "nothing is off the table" as the Bank and Treasury add to their plans in support of businesses and households.

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It included the possibility of money being given directly to individuals as measures, aimed at halting the spread of COVID-19, leave output in limbo and many millions of jobs potentially hanging in the balance.

Thursday's intervention marked its second emergency announcement of the week and - following close behind fresh action from the European Central Bank - it helped stock markets erase earlier losses.

Image: Christine Lagarde is president of the European Central Bank

A sign of how concerned investors are in the UK's economic response - Sky's economics editor Ed Conway writes:

It is a sign of how concerned investors were in the UK and its currency that rather than falling, as a currency usually does when its central bank cuts its interest rate, the pound actually rose.

While most attention will be focused on the interest rate cut, which takes UK borrowing rates down to the lowest level since the Bank was set up in 1694, the £200bn extra quantitative easing programme may end up proving more important.

That cash being pumped into the economic system may pave the way for the government to spend even more on its crisis response.

However it seems likely that this is not the last we will hear from the Bank and its governor.

Four days into the job he has already made history - though not perhaps the kind he would have hoped for.

"Not all that long ago many economists thought the next move in borrowing rates would be up. Now those rates are at the lowest level since the birth of capitalism."