THE BANK OF England boss said today that it will take “all necessary further steps to support the UK economy” from the current threat to its stability.

For the first time in what has been a turbulent few years politically in the UK, Mark Carney wasn’t talking about Brexit. 

He was talking about the coronavirus, as he announced the Bank of England slashing interest rates to a joint-record low of 0.25% as an emergency measure.

It’s the UK’s biggest rate cut (from 0.75% to 0.25%) since the global financial crisis of over a decade ago.

It follows the move from the US Federal Reserve last week to cut its interest rate by half a point to 1-1.25%. This was the first cut since the 2008 financial crisis. 

On Monday, meanwhile, UK and US stock markets had their worst day since 2008.

Ireland’s interest rates are governed by the European Central Bank, which is widely expected to follow the example of the US and UK as it steps up efforts to combat the threat to the continent’s economy from the Covid-19 outbreak.

The spectre of 2008 was brought up again by European Central Bank president Christine Lagarde at a teleconference of EU leaders on Tuesday.

Bloomberg reported she told leaders that if Europe doesn’t take coordinated action on Covid-19, we “will see a scenario that will remind many of us of the 2008 Great Financial Crisis”. 

Economic shock

With Italy now in lockdown, countries like Austria and Slovenia closing its Italian borders and other countries stepping up efforts to mitigate the spread of the virus, economic activity is taking a hit.

Business can lose out in a variety of ways in a situation such as the one being faced now. They may lose out on export opportunities to affected countries. Their supply chains may be affected.

They may lose business altogether or not be able to open their doors. Many have the ability for employees to work from home but that doesn’t apply to all industries.

If schools close, would employees need to take time off work? If public transport shuts down, can they get to work?

A survey of 400 firms by business group Dublin Chamber has said that around half of companies have already experienced a hit on their turnover as a result of the coronavirus outbreak. 

The government here has acknowledged that many businesses face a worrying few weeks and months ahead.

Minister for Business Heather Humphreys said yesterday: “I am hearing from many businesses that they are very concerned about their cash flow in the coming weeks.”

Schemes announced here include a €200 million package of loans available to businesses impacted by Covid-19. A maximum of €1.5 million can be loaned at reduced rates.

Another €200 million in funding is available through a rescue and restructuring scheme through Enterprise Ireland for vulnerable but viable firms. Other supports feature a “first responder service ” to provide tailored supports for impact firms with the objective of “avoiding mass lay-offs and buying time for firms to work through the short-term disruptions”. 

And, today, Minister for Finance Donohoe said Ireland was in need of an “unprecedented shared national effort” as he urged employers to still pay their employees if they had to take time off due to Covid-19 illness or self-isolation. He emphasised, however, that he was aware that some businesses may not be able to do so and said companies should insofar as they can.

The Bank of England and the British government were similarly stark in their predictions of what was needed to tackle the crisis.

When lowering interest rates, the bank said today that “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”.

Looking ahead, “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”, it added.

Interest rates and other measures

While it doesn’t address the public health crisis, slashing the interest rate was one measure available to the US and UK to try to ease the pressure on businesses as fears from coronavirus and its effects begin to really be felt.

Lowering it allows encourages banks to lend to small and medium-sized businesses, and help businesses facing cash-flow issues. 

But it’s not the only method being employed by central banks, with the Bank of England’s announcement today also including the loosening of rules on lending and the use of central bank reserves to provide cheap lending to businesses. 

This follows the measures put in place by authorities here to support businesses and employees.

The effect of such an interest cut for Ireland would be limited enough anyway, as the ECB rate is already so low.

In any case, Minister Paschal Donohoe said today that a range of actions are needed to mitigate the effect on businesses and employees but stressed at the same time that it remains a public health crisis above all else. 

He reiterated the Taoiseach’s message from Monday that workers shouldn’t feel they have to go work when the health advice that applies to them would suggest staying at home instead. 

Under the plans, private-sector workers affected by coronavirus will receive 305 euro per week from their first day of illness.

“We recognise that for many workers within our country, taking this decision is one that does have financial consequences and we want to ensure that the measures are in place to minimise financial concerns as employees, and as employers make decisions in relation to their own health,” Donohoe added.

The guiding principle in all decisions that we are making is recognising the scale of the public health challenge that we face and doing all we can to put the resources in place to respond back to this challenge and make the policy decisions that are needed to allow communities, companies, firms and employers to respond back to the challenge that is unfolding across the world and in our country.

The European Central Bank is set to unveil what measures it will take to support businesses here and on the continent while the Covid-19 outbreak remains ongoing tomorrow.

After the measures outlined in the UK today, and with one member state in Italy in such crisis already and the markets watching closely, taking little to no action appears unlikely. 

Bank of England’s Carney said today there was “no reason” the economic hit caused by coronavirus would end up causing the long-term damage seen after the 2008 financial crisis.

But, he added, “if we handle it well”. 

With reporting from AFP, PA