CORONAVIRUS LATEST

The Bank of England (BoE) has made an unexpected cut to interest rates in response to the ?economic shock? of the coronavirus (Financial Times, £, online only). The Monetary Policy Committee (MPC) unanimously agreed to reduce the main bank rate by 50 basis points from 0.75 per cent to 0.25 per cent. According to Reuters, the MPC will introduce a new Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises, financed by the issuance of central bank reserves. Sky News reports that the BoE's Financial Policy Committee, which identifies and acts on potential risks in the financial system, also lowered the so-called counter-cyclical capital buffer for banks to zero from one per cent.

Separately, homeowners have been offered comfort amidst the coronavirus crisis by a number of banks who have offered to defer mortgage and loan payments for borrowers affected by the outbreak, according to The Times (£, p8).

Meanwhile, The Guardian (p1) says chancellor Rishi Sunak is expected to set out mechanisms for companies with fewer than 100 employees to delay tax payments or benefit from short-term cuts to relieve pressure from the effects of the coronavirus in today's Budget. According to BBC News, Mr Sunak has said the NHS will get ?whatever resources it needs? during the crisis.

Commenting on the BoE's announcement, Stephen Jones, CEO UK Finance, said:

?The banking and finance industry recognises the concerns consumers and businesses may have about Covid-19 and all providers are ready and able to offer support to their customers who are impacted directly or indirectly.

?The new Term Funding Scheme with additional incentives for SMEs (TFS), and the release of the countercyclical buffer as it stands and reversal of the further increase that was in train, will help to ensure that funding from banks to businesses is not constrained and that excess reserves can be used to support lending to the real economy.

?Lowering the Bank rate remains a challenge for the banking sector and, as acknowledged by the Bank of England, when rates are low it is likely to be difficult for some firms to cut deposit rates which could limit their ability to reduce lending rates. The launch of the TFS will enable the industry to support cashflow needs with competitively priced finance for this vital part of the UK economy.

?A rate cut will affect consumers and businesses in different ways depending on the nature of the lending and savings products they hold. The majority of mortgage borrowers will not be impacted by today's rate cut, as they are on fixed-rate mortgages. For those mortgage borrowers on variable rates, lenders will be in contact to discuss any changes to their mortgage while many SMEs will automatically benefit where their borrowing is linked to Bank rate.?

UK BUDGET 2020

The government will unveil its first Budget in the Commons at 12:30 today. The Telegraph (£, p1) reports that it is understood public sector gross investment will total £600 billion over five years to 2025, in line with previous commitments to spend an extra £20 billion a year on investment as state borrowing costs sink to record lows.

City AM (p4) reports that the chancellor will triple the average net investment seen over the past 40 years as part of the prime minister's ?levelling up? plans. The Guardian (p1) says there is expected to be a threefold increase in the £200 million set aside to fund the removal of combustible cladding on tower blocks, and a £5 billion investment to roll out faster broadband across the UK by 2025.

Sky News says the chancellor will reportedly raise the employment allowance from £3,000 to £4,000 meaning firms will not have to pay employer national insurance contributions on the first £4,000 of their annual bill.

Meanwhile, The Office for Budget Responsibility (OBR) will forecast a cut in GDP growth to its lowest since the 2009 recession in today's Budget (The Times, £, p16).

NEWS IN BRIEF

The deficit in traditional pension funds is set to expand by as much as £150 billion because of the unprecedented fall in government bond yields (The Times, £, p35).

Lord Turner, who chaired the government's Committee on Climate Change, said the claim it would cost the British economy £1 trillion to reach net zero carbon by 2050 is misleading (The Independent).

Manchester will experience the highest house sale price and rental growth of any British city over the next five years as it continues to develop as an employment hub, according to estate agency JLL (The Times, £, online only).

WHAT THE COMMENTATORS SAY

David Smith, Economics Editor at The Times (£, p39), writes that today's Budget is a ?genuine emergency Budget? to prevent a health crisis from turning into an economic crisis. Mr Smith says the official forecast that underpins this Budget is in danger of looking like last month's news as it was put together before the recent acute financial and oil market turbulence and the global growth downgrades by the Organisation for Economic Co-operation and Development (OECD) and others.

Mr Smith writes that the Budget, which was focused on levelling up the regions and meeting zero-carbon objectives, may no longer be right for this moment in light of the coronavirus. He says there are other things the Treasury can do, including using the public purse to back loans to crisis-hit businesses and supplementing the hit to income for those forced on to statutory sick pay.

Mr Smith says that we should not pretend that efforts will prevent an economic impact or allow every business to survive, but the chancellor can seek to mitigate negative economic effects and prevent ?a bad first half of the year turning in to a terrible one?.

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