The Bank of England has announced an emergency cut in interest rates to shore up the economy amid the coronavirus outbreak.
Policymakers reduced rates from 0.75% to 0.25%, taking borrowing costs back down to the lowest level in history.
The Bank said it would also free up billions of pounds of extra lending power to help banks support firms.
It comes as the chancellor is expected to announce further measures to support growth and jobs in the Budget later.
The emergency rate cut comes as a sixth person died from the virus in the UK, which has a total of 382 cases.
The latest person to die was a man in his early 80s who had underlying health conditions.
Meanwhile, Manchester City’s Premier League match against Arsenal on Wednesday has been postponed as “a precautionary measure” because of the outbreak.
A number of Arsenal players are in self-isolation after coming into contact with Olympiakos owner Evangelos Marinakis, who tested positive for the virus..
Chancellor Rishi Sunak has pledged to help the UK battle the impact of the coronavirus, saying the NHS will get “whatever resources it needs” during the crisis, while he is also expected to unveil measures to boost the self-employed and small businesses who are left out of pocket.
Meanwhile, NHS England said it was scaling up its capacity for testing people for the infection, with the number of cases set to rise.
The unanimous vote to cut interest rates was part of a package of measures introduced by the Bank to support the economy.
Lower interest rates are good news for borrowers and bad news for savers because High Street banks use the Bank of England base rate as a reference point for many mortgages and savings accounts.
The Bank said it expected UK economic activity to “weaken materially” over the coming months.
This could lead to temporary but “significant” disruption that meant many firms and people may not be able to pay their bills on time.
“Such issues are likely to be most acute for smaller businesses,” the Bank said.
How will this affect your finances?
The sudden cut in the Bank rate will immediately reduce the mortgage bill of a minority of homeowners. Others will have to wait to see how their home loan provider reacts at a time when mortgage rates are already at very low levels.
Little will change for savers, who have had endure years of low returns anyway. They may take heart from the fact this is a temporary measure from the Bank.
Most people are, of course, savers and borrowers.
As well as concern over their physical health from coronavirus, their financial health will primarily depend on their job.
This emergency action is clearly designed to help protect businesses, particularly small and medium-sized ones, and in turn the employment of millions of people.
The Bank also said the turbulence in financial markets had influenced its decision to cut rates.
“Indicators of financial market uncertainty have reached extreme levels,” it said.
Policymakers announced a new £100bn scheme to help ensure households and businesses benefit from the reduction in interest rates.
The scheme will focus on small and medium-sized firms.
The Bank of England said other changes would free up an additional £190bn for banks to lend.
It said the package of measures would “help UK businesses and households bridge across the economic disruption that is likely to be associated with Covid-19”.
In a statement, the Bank said it was ready to take “all further necessary steps to support the UK economy”.
The Bank added: “These measures will help to keep firms in business and people in jobs and help prevent a temporary disruption from causing longer-lasting economic harm.”
Initially, the pound fell against both the euro and the dollar in reaction to the rate cut, but then rebounded.
Share markets reacted positively, with the FTSE 100 rising more than 2% in early trading.
The dramatic emergency rate cut will dominate the headlines, but it is the overall package of measures which the departing Bank of England governor Mark Carney will stress as a support for the economy in this extraordinary coronavirus crisis.
The key target of this move is the cashflow of small and medium-sized businesses, which could be hit by a combination of slumping demand, trade difficulties and staff absence.
The Bank and Treasury agree that this will be a temporary shock. The aim, therefore, is to prevent unnecessary permanent economic scars. Alongside Budget measures, it is designed as a bridge beyond the virus.
So the Bank’s base rate is slashed to its record low, first reached in the aftermath of the EU referendum. But as important is the new TFSME – the “Term Funding scheme with additional incentives for Small and Medium-sized Enterprises”.
This proved rather successful after the EU referendum, and the aim is to get the banks to pass on the rate cut in full to businesses, particularly small and medium-sized firms, which face the greatest pressure to cut staff or hours in a crisis.
The deployment of the counter-cyclical buffer, lowering capital requirements for banks by 2%, was designed for exactly this sort of rainy day. It should provide the firepower for banks to boost lending well above current lending levels.
To be clear, coronavirus is unique and highly unpredictable. There is a fundamental problem of people and businesses not being able to function because of the measures to contain the virus. The message from the Bank is that the banking system is fully padded up to help businesses get through this.