Bank of England cuts interest rates as construction looks for infrastructure answers in Budget

The Bank of England has announced an emergency interest rates cut to 0.25% from 0.75% this morning in response to the global economic slowdown caused by the coronavirus outbreak.

The cut brings interest rates down to the lowest level since the aftermath of the 2016 EU referendum, and is the first emergency rate cut since the the 2008 financial crisis.

The move comes as chancellor Rishi Sunak is expected to spend a “historic” amount on infrastructure over the next five years.

The money will be spent on roads and rail along with broadband and scientific research with further details expected to be outlined in his Budget later today.

The government has promised to “level-up” the UK following the Tories’ general election win last December and Sunak is expected to tells MPs this afternoon: “We will rebalance opportunities and lay the foundations for a decade of growth for everybody.”

It comes as industry leaders reacted with dismay to news that the long-awaited National Infrastructure Strategy was to be delayed again.

The strategy, which is set to outline the government’s approach to a £100bn programme of infrastructure investment over the next 30 years, had been expected in today’s Budget but last week it was reported that a further wait was necessary.

“Boris played his hand early on big infrastructure with a pitch to launch a ‘revolution’ and committing £100bn – so it’s ironic that the National Infrastructure Strategy is now delayed,” said Ben Lewis, infrastructure and energy director at Barton Wilmore.

While the Budget is still due to contain key announcements on infrastructure, the details and timetables for how a series of major projects will be funded are now expected to be published at a later date, thought to be in late April or early May.

First promised in 2018 and repeated in last year’s Conservative election manifesto, the strategy was set to include £4bn for flood defences and £29bn in strategic and local roads. Major transport projects such as HS2, Northern Powerhouse Rail were also expected to be included, along with devolved spending powers for combined authorities. A bridge between Scotland and Northern Ireland had also been mentioned by the prime minister.

The latest delay is expected to give Sunak (pictured) time to refocus the strategy to take advantage of a shake-up to fiscal rules under way since the departure of his predecessor Sajid Javid last month.

This could mean increased resources for infrastructure, a central element of Boris Johnson’s “levelling up” agenda, when the strategy is eventually published.

The chancellor could also be looking to reassess the National Infrastructure Commission’s recommendations following uncertainty around the Heathrow expansion project. It was ruled illegal by the court of appeal last month for not taking into account the Paris climate agreement.

In light of this judgment, which the government has decided not to appeal against, Sunak may now be making changes to ensure that major projects can be delivered in line with the government’s net-zero carbon pledge. 

Industry experts expressed consternation at another delay to the strategy, which was repeatedly pushed back during a year and a half of parliamentary turmoil due to Brexit. “While we recognise there is a new chancellor and that naturally, he will want to review it, Britain has been waiting a long time for progress,” said Chris Richards, head of policy at the Institution of Civil Engineers. 

Though Sunak has been the chancellor for just over four weeks, his former role as chief secretary to the Treasury means that he is likely to be familiar with the assessment’s recommendations.

Richards added that the Budget “should therefore set out the specific sticking points holding back publication of the strategy, outlining where further evidence is required”.

In a statement released by the National Infrastructure Commission, chair John Armitt said: “Naturally, we are disappointed about the further delay.” 

But he added that he was encouraged by the commitment shown by the government to long-term infrastructure investment. “If a short delay leads to a better strategy that more comprehensively addresses our recommendations, it will be worth the wait,” he said.