It is also restarting its quantitative easing (QE) project by purchasing £200bn of government bonds.
The central bank noted that the cost of borrowing was going up despite the government and bank’s economic and social interventions as a result of the coronavirus.
It warned that the spread of Covid-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but should be temporary.
And added that the role of the Bank of England was to help meet the needs of UK businesses and households in dealing with the associated economic disruption.
The bank held an additional special meeting of its Monetary Policy Committee (MPC) today and judged that a further package of measures was warranted to meet its statutory objectives.
The committee voted unanimously to implement the rate cut and restart the quantitative easing measures, taking the total stock of bonds held to £645bn.
Explaining the decision, the bank noted that the UK gilt market had deteriorated as investors have sought other measures and as a consequence, UK and global financial conditions have tightened.
Taking out the big guns
Alex Maddox, capital markets director at Kensington Mortgages highlighted the scale of the move.
“The Bank of England is taking out the big guns. The rate cut is mostly just a signal – trimming another 15 basis points to 0.10 per cent will have a negligible impact, as rates are already so low.
“What will make a big difference are the two other measures announced by the bank – a massive 45 per cent increase in the quantitative easing programme to £645bn, and even more money to the funding schemes that can get cash to consumers and small businesses.”