The Bank of England cut interest rates from 0.75% to just 0.25% on Wednesday in a surprise move aimed at bolstering the UK economy against the impact of the coronavirus outbreak.
The Bank's Monetary Policy Committee said: '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.
'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.'
Following the announcement, new UK chancellor Rishi Sunuk unveiled his first Budget.
There was some reprieve for tenants of properties as business rates for shops, cinemas, restaurants and music venues in England with a rateable value below £51,000 (€58,000) are suspended for a year.
There will also be a a 'temporary coronavirus business interruption loan scheme' for banks to offer loans of up to £1.2 mln to support small and medium-sized businesses. Sunuk also announced more than £600 bn for road, rail, housing and broadband projects over five years.
In other positive news, £500 mln has been earmarked for car charging hubs. John Roberts, head of automotive & roadside at Colliers International, said this was a step in the right direction, but added: 'Concerns over the ability of the current UK energy supply to meet future demand and the lack of guidance for landlords and developers for integrating charging points into commercial premises is causing misperceptions.'
Meanwhile, stamp duty for overseas buyers of residential property will be increased.
Richard Stubbs, head of lending at Brown Shipley, said: 'The UK housing market has always been viewed as a safe investment from all corners of the world. Today’s announcement of a 2% increase in stamp duty for overseas buyers will not be a surprise many international investors and is in fact less than was anticipated. We don’t believe it will deter international investors who will continue to view UK property as a solid asset class.'
Low interest rates in the UK could lead to cheaper borrowing costs for those buying residential property. It might also have an impact on private owners of homes looking to refinance. In the US, the Federal Reserve took the decision on 3 March to cut interest rates from 1.75% to just below 1.25%. For residential property owners, there had already been a glut of refinancing before the rate cut but Forbes.com reported 'complete mayhem' as re-fi applications soared 224%.
Melanie Leech, CEO of the British Property Federation, said: 'The Budget today was always going to be more difficult than the Chancellor would have liked, given the immediate threat of coronavirus, but he has rightly balanced short-term interventions in response to the global health emergency and the Government’s long-term ambitions to level up the UK’s regions.'
Currency markets reacted to the UK cut in interest rates by firstly devaluing Sterling against the Euro and other major currencies, making it theoretically cheaper to buy UK real estate, but Sterling later rose as foreign exchange markets digested both the Bank of England's stance and the Budget stimulus.
