Johnson’s Meeting With Chancellor, BOE Sets Stage for Coordinated U.K. Virus Response

(Bloomberg) -- U.K. Prime Minister Boris Johnson held a rare joint meeting with his finance minister and the country’s central bank governor on Thursday to discuss the economic response to the coronavirus outbreak, adding to signs that authorities are planning a coordinated action to defend the economy.

The meeting in Johnson’s Downing Street office with Governor Mark Carney and Chancellor of the Exchequer Rishi Sunak comes amid mounting speculation that the Bank of England will follow government measures in next week’s budget with an interest-rate cut and other steps to help struggling companies.

“We will make sure that we give U.K. businesses the support that it needs,” Johnson told ITV. “Watch out for the budget next week, we’ll be doing some things to help businesses and to help the economy generally.”

Later Thursday, Carney said that the bank was “coordinating with HM Treasury to ensure that any initiatives are complementary and that they will collectively have maximum impact,” adding that the BOE’s “policy arsenal includes monetary policy instruments, special liquidity facilities, and macroprudential tools.”

The bank has a lot of ammunition remaining and will act “as appropriate, when appropriate,” Carney said. He stressed that the U.K. has the resilience in the financial system to absorb the shock.

The unusual threat posed by the virus outbreak to the world economy is prompting closer collaboration between governments and monetary-policy makers. While meetings between BOE officials and the Treasury are not uncommon, the central bank’s operational independence means it typically avoids being closely linked to government plans.

Supporting Business

Both the BOE and government have indicated the need to help businesses reeling under the weight of cash-flow constraints and disruptions to their supply chains. The fallout looks set to undermine a nascent economic recovery following Johnson’s decisive election victory in December. Economists at Goldman Sachs say it could even push the U.K. economy to the edge of recession.

On Tuesday, Carney said he was confident the U.K. would come up with a “powerful and timely” response. Andrew Bailey, who takes over the central bank’s top job on March 16, said the following day that he will work hand-in-hand with the Treasury to help the economy. “We can’t let our notions of independence” prevent a coordinated response, he said.

In his ITV interview, Johnson also hinted a collaborative response.

“I’ve just been speaking with the Chancellor and the Governor of the Bank, the U.K. economy is very robust,” he said.

Goldman forecast a 50-basis-point interest rate cut at the BOE’s March 26 meeting. Deutsche Bank economists said Wednesday they expect “coordinated policy action” between the Treasury and BOE, with next week’s budget likely to include a series of emergency measures to support businesses and households.

That would then be followed by a BOE rate cut, possibly on budget day to reinforce the idea of coordination, the economists said. There may also be “targeted measures to increase liquidity” by the central bank.

These steps could include a new Term Funding Scheme, which gives banks cheap funding for loans to companies, and freeing up cash by lowering a mandatory capital buffer that banks are required to hold in case of downturns.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net;Robert Hutton in London at rhutton1@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Alaa Shahine, Brian Swint

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