Huge stimulus measures, designed to buffer the economy from the growing coronavirus pandemic, appear to be having the desired effect in calming the stock market today. UK stocks jumped at the open on Friday, paring back some of the recent historic losses.
Yesterday, with Chancellor Rishi Sunak poised to release a huge rescue package for British companies and their workers, expected to be laid out later today, the Bank of England played its own part in seeking to calm evident stress in the markets.
As well as announcing an emergency £200 billion increase in the bonds it is prepared to own, financed by printing money, it also cut interest rates to 0.1%, the lowest in the central bank’s 325-year history. It has been a real baptism of fire for Andrew Bailey, who took over as Governor of the Bank of England on Monday.
While we await the announcement of the next steps to be taken, let’s remember that it was only earlier this week, on Tuesday, that Mr Sunak revealed a £350 billion stimulus package for UK firms including £330 billion of business loan guarantees. He also included aid to cover a business rates holiday and grants for retailers and pubs. Help for the airlines is also being considered.
This morning UK markets have responded positively to the steps taken so far, with the FTSE 100 index back up just over 3.5% in morning trading. Gold was up 2.5% in early trading and the pound also strengthened against both the US dollar and the euro.
That will be cautiously welcomed though at the end of a tumultuous week that has seen the pound fall to its lowest level against the dollar since 1985. Sterling reacted favourably in the minutes that followed the Bank of England’s second surprise rate cut. By mid-afternoon the pound had risen more than 1% to $1.17 against the US dollar but it had slipped back to $1.15 by early evening. Today the pound is currently trading back up a little, around $1.175; having seen falls of as much as 5% on some days this week.
The pound's weakness is likely, in part, to come from question marks hanging over exactly how the UK government will pay for the emergency economic measures it has introduced, not to mention that second surprise rate cut and the situation has been compounded by investors flocking to the perceived comparative safety of the dollar.
Just as lower interest rates will please anyone with a tracker mortgage and worry savers, the weak pound has its pros and cons. One fact is that it makes exports cheaper and is likely to be a positive for the majority of companies that make up the FTSE 100 index of leading stocks, who make most of their earnings overseas.
For now uncertainty is the only certainty and the ever-changing situation is something that we all must deal with. For our part, we will continue to do all we can to keep you updated with everything you need to know across the Markets & Insights section including our dedicated Coronavirus and volatility hub.
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