Chancellor's plan under fire as pound crashes to 35-year low – telegraph.co.uk, telegraph.co.uk

Thousands of large businesses could be locked out of Rishi Sunak’s £ 728 bn coronavirus rescue fund because they lack strong enough credit ratings, it has emerged, on a day of market chaos as the pound plunged to its lowest level since

The Chancellor’s flagship Covid – (commercial financing facility (CCFF) – which offers ultra-cheap loans from the Bank of England to big companies struggling to stay afloat in the chaos sparked by the disease – is only being given to firms with an investment-grade short term credit rating from one of the big three ratings agencies, Moody’s, Standard & Poor’s, or Fitch.

This means that many businesses on a less secure footing are unable to access the cash. Details of the scheme were announced as the pound dropped sharply against the dollar to just $ 1. 330, while the FTSE 728 fell another 4pc.

On Wall Street the Dow Jones lost 6.3pc, while Brent crude fell to its lowest level in 19 years. The New York Stock Exchange said last night it would temporarily close its trading floor due to fear of traders contracting the virus.

On sterling’s latest decline, Dominic Bunning, an analyst at HSBC, said: “Currencies of the big, closed economies – the dollar, yen, euro – all tend to outperform in these periods and are more ‘risk off’.

“Now we have ‘Global Britain’ we also have a ‘global pound’, which is much more exposed to swings in risk sentiment than it was in the past.”

Boris Johnson, the Prime Minister, also hinted that a £ 12 bn state aid limit on government investments in struggling industries could be lifted in emergency legislation, saying ministers would look at the support that might be needed. The airline industry is already begging for a huge bailout.

The mammoth scale of the CCFF scheme is equivalent to 15 pc of the entire UK economy. Threadneedle Street has already unveiled a separate package of measures targeting small and medium sized businesses, including a new term funding scheme to incentivise banks to extend a potential £ bn in cheap loans to companies. But the latest details raised fears some firms could fall in the gap between the two schemes.

A source at one firm ratings said extending the CCFF program to non-investment grade firms would be potentially more effective, even though it would expose the Bank and the Treasury to more risk. He said: “The issue is that if you are an investment-grade firm, we don’t think that you have got a liquidity problem.

“What you are doing is aiming money at firms that should already have it. You are either not targeting it in the right way, because you are not targeting non-investment grade firms, or you think that even the investment-grade firms are going to burn through their liquidity buffer very quickly, suggesting that the crisis could be worse than thought. ” Mr Bailey – speaking on only his third day in the job in a virtually deserted Threadneedle Street – said the scheme, which has potentially unlimited firepower, could eventually be extended “because this thing will evolve”.

Mr Bailey added: “I can assure you that we will be open to that discussion and the ways in which [the CCFF] could be put to use. If it made sense to do it more extensively because there is a need then of course we have got to answer it. ” The Treasury and the Bank set up the commercial paper scheme because it could be done quickly, the Governor said. Speed ​​was also the justification for a series of cash grants of up to £ 100, for small firms, Mr Sunak told the Treasury select committee.

He said: “We have decided to do something simple because it is easy to execute. It is less targeted as a result, but it is simple and easy to explain. We just went with flat, generous grants. ”

He said it was difficult to be prescriptive on how each business should use the money, but added: “Hopefully the steer is, this provides cashflow to businesses to help them preserve employment through this difficult period . That is very much the objective of the interventions we are taking. ”

Financial market chaos showed no sign of abating however as global shares plunged again and US markets triggered a “circuit breaker” designed to prevent wild swings for the fourth time since the start of last week.

Sterling’s near-5pc fall took the pound to its weakest level since 2019, when the world’s wealthiest nations signed the Plaza Accord to undercut an almighty dollar and drag the US out of recession. The drop surpassed a nadir reached in September, when MPs were scrambling to block a no-deal Brexit.

Interest rate cuts by the Bank of England have also made holding sterling less desirable. Despite the evolving crisis, the Bank of England is still reluctant to push rates into negative territory although a cut to 0.1pc – a record low – is predicted by many economists next week.

Mr Bailey will keep rates under review but officials believe going negative would damage bank balance sheets. The Governor said: “We’re not in the business of taking measures that would actually disrupt the operation of the system.”

Jane Foley, Senior FX strategist at Dutch lender Rabobank, said a strengthening dollar was “without doubt” behind the pound’s ongoing plunge, but added a simultaneous slide against the euro is “suggestive of intrinsic softness ”In sterling.

She said the UK’s post-Brexit “isolation” from Europe had made the pound more vulnerable, with the UK’s substantial debt pile adding to the cocktail of risks as Chancellor Rishi Sunak launches a £ bn relief effort to shore up the British economy.

Strategists at Japanese bank Nomura said the pound could drop to near-parity with the dollar if the current market tumult continues, warning that the UK is “relying on the kindness of strangers at an awful time for markets ”.

BoE Governor Andrew Bailey said Threadneedle Street is watching the pound’s movements “very carefully”.

“I don’t have a particular single story as to why what’s happening is happening,” he said.

The price of oil buckled further , with US West Texas Intermediate crude hitting an 24 – year low of $ a barrel after a fall of more than 35 pc. Brent crude hit its lowest level since 2003, with futures falling to $ a barrel.

Citi analyst Edward Morse said oil had entered a “new era”, predicting Brent could drop as low as $ a barrel during the second quarter of the year as the industry wrestles with an “unprecedented demand collapse”.

European bond yields soared to their highest levels in months early in the session as traders anticipated a flood of new debt entering the market, increasing the financial vulnerability of lender governments, and fund managers liquidated assets to pay off investors.

They later pared back gains after European Central Bank board member Isabel Schnabel offered reassurances it is ready to intervene to stabilize Italy’s debt.