Your Questions Answered

Last week, we held a virtual Q&A with Graeme Chaplin of the Bank of England. Graeme answered user-submitted questions on current economic conditions and prospects, monetary policy, and discussed what the Bank of England is doing to support the economy in the current crisis. Here are a few of the key points covered:

Who is Graeme Chaplin?

Let me introduce myself: my name is Graeme Chaplin, I’m the Bank of England Agent for the West Midlands. What does that mean? It means that I’m the eyes and ears of the Bank of England in the region. So, I spend all my time talking to businesses in the region, trying to find out what's going on in the real economy and then feeding that information back to the Bank of England. It's never been more important for the Bank to have a real-time, on the ground sense of what's going on. There's a network of 27 Bank Agents across the UK, feeding in that information on a daily basis, so that's my role.

What is the role of the Bank of England?

What we're here to do is to make sure that the financial system is resilient, and that money retains its value. The first bit is called financial stability and the second bit is monetary stability. It's that monetary policy which (in normal times) gets all the headlines because that's about setting interest rates and doing quantitative easing. But at the moment as much of the interest is around the financial stability piece, making sure that the banking sector, in particular, is resilient and able to support the UK economy during this incredibly challenging time.  

In response to the current crisis, what has the Bank of England done to support the economy?

1. We've cut interest rates to their lowest ever level: Bank Rate is now 0.1%. We've also undertaken £200billion worth of new quantitative easing: taking the total up to £645billion of new money created. Both actions will help to guard against any unnecessary tightening in financial conditions, support businesses and households through the crisis, and limit any lasting damage to the economy. 

2. We've also made sure that the banks have got sufficient liquidity to lend: that they can fund themselves. We’ve put funding streams in place to make sure that the banks can come to us, with suitable collateral, to access any funding they need at Bank Rate. So, not only can they get funding, it makes sure that that the 0.1% Bank Rate cut feeds through to the banking sector, as they can borrow from us. 

3. We've got a funding scheme in place, which incentivises the banks to support SMEs (small and medium-size businesses) and we've made sure that the regulatory framework that we run is not impeding them from lending; they don't have to put extra capital aside at the moment, for example. We're letting them run down their countercyclical capital buffers in order to support lending. UK banks have also agreed not to pay out dividends or bonuses at the moment: keeping their reserves intact in order to support their lending. 

4. We have put a big financing facility in place: The Coronavirus Corporate Financing Facility, for investment grade UK firms. That makes sure that many significant firms in the economy can continue to finance themselves by issuing a commercial paper to us. And, therefore, they can keep on paying their suppliers and their employees and keep on functioning.  

5. A number of different government policies have also been put in place: most importantly, the job retention scheme, so-called furloughing, which has had a massive impact, but also VAT deferrals, other tax deferrals, rebates on statutory sick pay and business rates holidays for some sectors. And then there are various guarantee schemes for bank lending, such as the business interruption loan scheme, so-called CBILS (Coronavirus Business Interruption Loan Scheme), which was revamped recently to open it up to larger firms. They've also just announced seed funds for start-up tech type firms.  

Final thoughts?

Currently, I’m interested in how businesses are thinking about planning for the post-Covid-19 recovery: What will be the challenges?  What could be the best ways to phase economic support during the recovery period?