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Bank of England support on coronavirus gives UK advantage over EU countries

Posted by Warwick Business School at 20 March 2020, 00:20 CET |
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Expert comment from Dr Ivan Petrella, Associate Professor of Economics at Warwick Business School.

The Bank of England's decision to cut interest rates for a second time in a week, to their lowest level in history, is another clear indication that UK policymakers are ready to make coordinated efforts to support the economy.

This will be vital for small businesses, which are most vulnerable to the Covid-19 shock as they tend to rely on regular cash flows to keep their business afloat.

The fact that the Bank of England is ready to step up its efforts to stimulate the economy gives the UK has a clear advantage over countries in the EU.

It is now clear that the prolonged impact of a shut-down to the economy, coupled with the large fall in demand and related uncertainty, will most likely lead to a severe downturn unless we see more drastic and decisive policy actions. That will most likely lead to a massive credit crunch for large sectors of the economy.

So far, the Government has put forward a fiscal package of a similar size to other European countries to support businesses, but it falls short of direct support to jobs. This is most likely the area where the Government will have to intervene in the coming weeks if it aims at prevent a wave of lay-offs.

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