The Bank of England on Thursday unveiled an extra £150 billion in cash stimulus as it forecast a deeper coronavirus-induced recession for the UK and England began a second lockdown.
The BoE, which held its benchmark interest rate at a record-low 0.1 percent, lifted its quantitative easing (QE) stimulus by the equivalent of $195 billion as it seeks to boost lending by retail banks and consequently economic growth.
The bank’s monetary policy committee voted “for the Bank of England to increase the target stock of purchased UK government bonds by an additional £150 billion, financed by the issuance of central bank reserves”, it said in a statement.
The statement made no reference to the possibility of negative interest rates, as some had speculated could be used as an additional stimulus tool.
The news came ahead of a statement from British finance minister Rishi Sunak who is reportedly set to announce another multi-billion-pound coronavirus support package, including another extension of his government’s furlough jobs scheme.
Thursday’s BoE announcement meanwhile took the central bank’s total QE stimulus amount to £895 billion.
The bank has now pumped out £450 billion under its QE programme since March when Covid-19 prompted Britain’s first coronavirus lockdown.
Prior to this, it had pumped hundreds of billions of pounds into the UK economy over the past decade in the wake of the global financial crisis and Brexit.
– ‘New lockdown’ –
England began Thursday a minimum of four weeks of stay-at-home restrictions, as the government seeks to stem a second wave of Covid-19 after similar action elsewhere in Europe.
The initial lockdown that lasted around three months until mid-June sparked Britain’s deepest recession on record.
“Since the committee’s previous meeting (in September), there has been a rapid rise in rates of Covid infection,” the BoE said in a statement announcing the outcome of Wednesday’s regular policy meeting.
“The outlook for the economy remains unusually uncertain,” it said.
“It depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom” post Brexit.
“It also depends on the responses of households, businesses and financial markets to these developments,” the BoE added.
It forecast the economy would shrink by 11 percent this year, worse than prior guidance of a 9.5-percent contraction.
GDP was then set to rebound by 7.25 percent next year — but this was also down from the 9.0 percent increase given previously.
– ‘Extraordinary situation’ –
Under QE, the BoE purchases assets such as government and corporate bonds, with the aim of boosting investment and lending to stimulate economic activity.
BoE governor Andrew Bailey, speaking to reporters on a conference call, described Thursday’s action as a response to an “extraordinary” global health emergency.
“We’re not experts on what the measures should be on health, on national lockdown. We talk to experts,” Bailey said.
“What I would say, and I look at it from the point of view of economic policy, I think it’s very important that we take prompt, strong action.
“We are all aware that this is an extraordinary situation, I think it is therefore appropriate that we take this action,” he added.