Bank of England cuts rates to 0.1%, ramps up bond-buying

The Bank of England cut interest rates to 0.1% on Thursday, its second emergency rate cut in just over a week, and ramped up its bond-buying program in a fresh attempt to shield Britain's economy from the coronavirus outbreak. The BoE's Monetary Policy Committee voted unanimously for the cut to the benchmark rate - which had been slashed to 0.25% on March 11 - and for a 200 billion-pound increase in the central bank's bond-buying program to 645 billion pounds ($752 billion).

"Over recent days, and in common with a number of other advanced economy bond markets, 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," the Bank said. "As a consequence, UK and global financial conditions have tightened."

Most of the extra debt the BoE will buy will be British government bonds, the BoE said as it followed other central banks around the world is ramping up their stimulus efforts. Karen Ward, chief market strategist for Europe at JP Morgan Asset Management, said the BoE's willingness to buy government debt would help finance efforts to combat the virus more smoothly.

"The support to the economy and health system will require vastly higher government borrowing. The central bank showing willing to buy government debt will ensure the market can absorb this additional issuance without undue stress," she said. The pound, which on Wednesday sank to a 35-year-low as investors rushed into U.S. dollar assets, rallied more than 1 percent to the day's highs after the BoE's announcement.

Yields on British government bonds fell sharply, reversing some of a steep rise that sharply accelerated on Wednesday. The purchases announced on Thursday would be completed as soon as "operationally possible, consistent with improved market functioning," the BoE said.

"The Bank will issue further guidance to the market in due course," it said.