US slashes interest rates, fuelling speculation the UK could follow their lead 

Interest rates could be cut in response to the coronavirus outbreak.

Last night the US Federal Reserve slashed its interest rates by half a percentage point due to the ‘evolving risks to economic activity’.

It was the first emergency cut in the US since the financial crisis more than a decade ago.

Yesterday, Bank of England governor Mark Carney indicated a rate cut could be on the cards.

Giving evidence to the Treasury committee for the final time before he steps down as governor on March 15, he revealed the Bank is considering whether to cut official interest rates from 0.75 per cent.

He told MPs that the Bank’s monetary policy committee is ‘assessing the economic impacts and considering the policy implications’.

A cut would drive down the cost of borrowing for millions of households and businesses, giving them breathing space if the economy slows down.

Asked by MPs if a cut was imminent, Mr Carney indicated the decision would not be made before March 26.

His appearance came just hours before the US Federal Reserve announced it was cutting rates by half a percentage point to a target range of between 1 per cent and 1.25 per cent.

It is its first emergency rate cut since December 2008 in the midst of the financial crisis and is also the biggest cut since the Great Recession.

In a statement, it said: ‘The fundamentals of the US economy remain strong. However the coronavirus poses evolving risks to economic activity.’

The move follows a series of angry tweets sent by Donald Trump to the US Fed’s chairman Jerome Powell urging him to take action.

Mr Trump – who days ago dismissed fears of a US coronavirus outbreak as ‘fake news’ whipped up by the Democrats and media – has been urging the US Fed to cut rates further.

He tweeted: ‘It is finally time for the Federal Reserve to LEAD. More easing and cutting!’

But instead of reassuring financial markets, the Fed’s shock move spooked investors on Wall Street and the Dow Jones slumped 3.1 per cent.

A report from the Organisation for Economic Co-operation and Development has warned the outbreak could halve global growth this year, tipping many countries into recession.

Hopes of a co-ordinated global response increased following an emergency call between G7 finance ministers and central bankers yesterday. This helped lift markets in the UK and across much of Europe.

The FTSE 100 of Britain’s biggest companies rallied for the second consecutive day, rising almost 1 per cent.

Mr Carney yesterday also warned the coronavirus could trigger a ‘large’ economic shock but insisted the impact will ‘ultimately be temporary’ and not as devastating as the financial crisis.

He said: ‘We don’t want viable businesses to go out of business because of the very necessary steps that need to be taken to protect and serve the British public over the course of the near future.’

The outgoing governor has been in regular contact with Chancellor Rishi Sunak and Treasury officials are understood to be preparing to set aside billions of pounds in next week’s Budget to help firms and workers cope with the impact of a major epidemic.