• The Bank of England cut interest rate to 0.1%.
  • The Bank of England slashed rates only last week
  • The pound sterling has been falling against the dollar in recent days

The Bank of England slashed interest rates on Thursday, bringing it down to 0.1% from 0.25%, in an emergency measure to support the U.K. economy amid the coronavirus pandemic.

The bank cut rates only last week as well.

As of Thursday, 11:20 am EDT, the pound climbed 1.01% to $1.1732.

The bank also said it will increase its holdings of U.K. government and corporate bonds by £200 billion ($234 billion) thereby injecting more money into the economy.

However, it remains to be seen if this action will actually help the U.K. economy already besieged by the effects of the coronavirus, including shuttered businesses. Moreover, the government has already enacted other fiscal measures while the pound sterling has been sinking recently.

On Wednesday, the pound sterling fell to its lowest level against the U.S. dollar since March 1985, suggesting investors were moving away from both U.K. and European currencies in favor of the greenback as a safe haven in a time of extreme turmoil.

On Wednesday, the pound plunged almost 5% against the dollar.

However, the pound sterling, still one of the world’s reserve currencies widely held by central banks, has unique exposure to economic trends on both sides of the Atlantic. Britain’s withdrawal from the EU earlier this year added to concerns about the pound’s long-term health. Trade talks between the U.K. and EU have stalled and now postponed due to coronavirus fears.

“A combination of the safe-haven dollar bid, the global asset sell-off and liquidation of long positions from the [December] election are all weighing on the pound,” said Neil Jones, head of foreign-exchange sales to financial institutions at Mizuho Bank Ltd.

Moreover, Britain sorely needs foreign capital inflows and foreign investments to keep its financial system viable.

Paul Robson, head of G-10 currency strategy at NatWest Markets, said the pound has suffered primarily due to the strengthening dollar.

“There just seems to be a scramble to buy dollars and that’s just making the fall in sterling more than just a sterling story,” Robson said. “It feels like sterling is doing bad against lots of currencies, but it’s mainly against the safe-haven currencies.”

Connor Campbell, financial analyst at trading platform Spreadex, said with investors desperately looking for something resembling a safe haven, “the dollar has become a go-to for nervy traders, causing the pound to get absolutely pummeled.”

Neil Wilson, chief analyst for, suggested the pound’s drop is linked to worries over how the British government will pay for the £350 billion ($408 billion) emergency stimulus package unveiled by Chancellor of the Exchequer Rishi Sunak on Tuesday. That figure included £330 billion ($385 billion) in business loan guarantees.

"This is the worst sustained period of sterling selling that I can recall," he said. "The government's massive fiscal package undoubtedly means more borrowing for the U.K. economy -- how do we pay for all this?"

Ranko Berich, head of Market Analysis at Monex Europe, noted that Britain’s fiscal moves have done nothing to help the pound.

"The U.K.'s response to the incoming coronavirus shock has been about as aggressive as possible in terms of monetary and fiscal policy, but this has done nothing to help sterling,” he said. "Idiosyncratic factors such as the U.K.'s monetary and fiscal response or Brexit are beside the point: this is about the U.S. dollar, which is proving unstoppable as global financial markets stare into the abyss of crisis-like conditions.”

Faisal Islam, BBC’s economics editor, called the sterling's fall “clearly troubling.” He noted the pound also sunk to an 11-year low against the euro.

“At the same time, U.K. government borrowing costs are creeping up, with the presumption these would stay ‘lower for longer’ now being tested in global debt markets,” he wrote. “Traders have raised a range of reasons for why the U.K. is being particularly singled out for attention. There is growing expectation of ever bigger fiscal injections to combat the economic impact of the pandemic and the U.K. is still very dependent on foreign flows of capital. Its strategy for dealing with the pandemic was seen, say traders, as an outlier amongst the world's major economies.”

Brexit further compounds matters, Islam added.

“The U.K. has the extra economic challenge of dealing with a fundamental change to trading arrangements with the EU… in the middle of this pandemic,” he wrote. “It is a very rough market out there, with some markets a little dysfunctional as traders are isolated away from their trading floors. But the U.K. is being singled out for especially tough treatment.”

Other analysts think the markets indicate Prime Minister Boris Johnson’s fiscal efforts are not enough.

“The U.K. has a coordinated monetary and fiscal policy approach but the size of the package is still being deemed by markets as insufficient,” said Hetal Mehta, senior European economist at Legal & General Investment Management. “A new [Bank of England] governor only three days into the job whose monetary policy views are still largely unknown will also cause some nervousness.”