The Bank of England has cut its main interest rate from 0.75% to 0.25% in a bid to help UK households and businesses rocked by the coronavirus.
The central bank said the decision came following the spread of Covid-19, which has seen stock markets and shares plunge around the world.
In a statement, the bank said its role is to help UK businesses and households manage through an economic shock from coronavirus “that could prove sharp and large, but should be temporary”.
It is the first cut since August 2016 and the first unplanned rates decision since the 2008 financial crisis.
The bank said that following the spread of Covid-19, “risky asset and commodity prices have fallen sharply and government bond yields reached all-time lows consistent with a marked deterioration in risk appetite and in the outlooks for global and UK growth.
“Indicators of financial market uncertainty have reached extreme levels. “
It went on: “Although the magnitude of the economic shock from Covid-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months.
“Temporary, but significant, disruptions to supply chains and weaker activity could challenge cash flows and increase demand for short-term credit from households and for working capital from companies.
“Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy. “
The rate cut decision was taken at a special meeting of the Monetary Policy Committee which ended on Tuesday and the vote to cut the bank rate by 50 basis points to 0.25% was unanimous.
The MPC also voted unanimously for the bank to introduce a new term funding scheme with additional incentives for small and medium-sized enterprises (TFSME), financed by the issue of central bank reserves.
The bank said the rate cut “will 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”.