Another fine mess

19 March 2020 By Swaha Pattanaik Follow @swahapattanaik

New boss Andrew Bailey has cut UK interest rates to 0.1% and ramped up bond buying. Among the reasons for the easing is a deterioration in the government debt market that is leading to a tightening of financial conditions. Even massive asset purchases may not fix that headache.

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The Bank of England on March 19 cut interest rates to 0.1%, its second emergency rate cut in just over a week, and ramped up its bond-buying programme in its latest attempt to shield Britain's economy from the coronavirus outbreak.

The UK central bank said its Monetary Policy Committee voted unanimously for the rate cut and for a 200 billion-pound increase in the central bank's bond-buying programme to a total of 645 billion pounds ($752 billion).

The bank said that “conditions in the UK gilt market have deteriorated as investors have sought shorter-dated instruments that are closer substitutes for highly liquid central bank reserves”. As a consequence, it said, UK and global financial conditions had tightened.

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