LONDON (AFP) – The Bank of England (BoE)yesterday unveiled an extra GBP150 billion in cash stimulus and forecast a deeper coronavirus-induced recession for the United Kingdom (UK) as England begins a second lockdown.
The BoE, which held its benchmark interest rate at a record-low 0.1 per cent, lifted its quantitative easing (QE) stimulus by the equivalent of USD195 billion as it seeks to boost lending by retail banks and consequently economic growth.
The bank’s monetary policy committee voted “for the BoE to increase the target stock of purchased UK government bonds by an additional GBP150 billion, financed by the issuance of central bank reserves”, it said in a statement. Yesterday’s announcement took the central bank’s total QE coronavirus stimulus to GBP895 billion.
The bank has now pumped out GBP450 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 2008-09 global financial crisis and Brexit.
Yesterday’s decisions come as England begins a minimum four weeks of stay-at-home restrictions, as the UK government seeks to stem a second wave of Covid-19 after similar actions 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 (EU) and the UK” 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 per cent this year, worse than prior guidance of a 9.5-per-cent contraction.
GDP was then set to rebound by 7.25 per cent next year – but this was down from the 9.0 per cent increase given previously.
Under QE, the BoE creates cash that is then used to purchase assets such as government and corporate bonds, with the aim of boosting lending and stimulating economic activity. The bank first embarked upon what was at the time a very unusual policy measure in the wake of the global financial crisis.