Bank of England set to unveil another big stimulus for UK

LONDON (AP) — The Bank of England is set to unveil another big stimulus for the United Kingdom (UK) economy as it tries to limit the scale of the coronavirus recession.

The central bank is expected to join its counterparts around the world, including the United States (US) Federal Reserve, in bolstering support measures following the initial radical responses to the economic threat of the pandemic.

The meeting of the bank’s monetary policy committee is taking place in the wake of figures showing that the UK economy shrank by a fifth in April alone as a result of the country’s lockdown, which has seen many sectors shuttered.

The consensus in financial markets is that it will launch another bond-buying programme of at least another GBP100 billion, to complement the GBP200 billion stimulus it announced in March when the outbreak was in its ascendancy. The intention would be to keep a lid on interest rates and keep money flowing through the financial system.

However, the committee is not expected to cut interest rates further, specifically reducing the main benchmark to below zero for the first time in the bank’s 326-year history — it currently stands at 0.1 per cent.

Union flags and support messages on Oxford Street, ahead of the reopening of the non-essential businesses in London. PHOTO: AP

Although some of Britain’s lockdown restrictions are easing, including Monday’s reopening of shops selling nonessential items such as books, sneakers and toys, the UK economy is set for one of its deepest recessions ever and a consequent big spike in unemployment. Last month, the Bank warned that the UK faced its worst recession since 1706.

In addition to the bank’s support measures, the British government is also readying a big fiscal package for this summer to help the economy, potentially involving a sales tax cut and funding big transport and green projects.

It already implemented an array of hugely expensive support programmes to deal with the initial economic fallout of the coronavirus. The Job Retention Scheme, for example, is widely credited with limiting the number of people losing their jobs. But it is set to end this autumn, and there are worries that firms will start cutting jobs at an accelerating rate through the summer.

“The growing risk of unemployment notching higher over the summer emphasises that the economy is unlikely to return to its pre-virus size for quite some time,” said developed markets economist at ING James Smith.

Britain has the worst coronavirus death toll in Europe, at over 42,000, and the Conservative government has been sharply criticised for what many see as its slow, muddled response to fighting the pandemic.

Britain also faces economic risks from its historic decision to leave the European Union, which it did in January. It is in a transition period now with the 27-nation bloc until the end of the year, when it could face trade challenges.