Bank of England pumps £150bn into economy as governor warns of downturn
Bank of England launches new £ 150bn stimulus package
The Bank of England has boosted its already extensive bond buying program by £ 150bn ($ 195bn). Regulator prepares for economic shock from second wave of coronavirus and looming risk from Brexit.
The decision came on the day England imposed a four-week quarantine to curb the effects of COVID-19, whose daily death rate reached May levels..
The Bank of England said the UK economy will contract 2% in the fourth quarter as a result of new restrictions. For the whole year, the economy will sag by a record 11%, which is 1.5% higher than the previous March forecasts.
«The outlook for the economy remains highly uncertain. Much depends on the pace of the pandemic and the measures taken to protect the population, as well as on the nature of new trade agreements with the EU and the speed of transition to them.», – said the representative of the regulator.
The Bank of England, as expected, kept the base rate at 0.1%, while almost not mentioning the plans to introduce its negative indicators.
The bank increased the size of its asset purchase program to £ 895bn, up £ 50bn more than most economists expected in a Reuters poll. This will give him enough tools to stretch the purchase of government bonds until the end of 2021..
«A huge economic shock requires an extraordinary political response. The second wave of the virus will herald an increased interest of companies in the global capital markets to borrow large sums of money. Regulator purchases in these markets will help prevent higher borrowing costs», – said Ambrose Crofton, Global Markets Strategist at J. P. Morgan Asset Management.
Pound Sterling Rises Against Dollar And Euro Following Bank Of England Statements. Bond yields fell.
Now the British Central Bank expects the economy to exceed its pre-crisis level only in the first quarter of 2022. The recovery was previously predicted to be completed by the end of next year..
Unemployment is set to peak at 7.75% in the second quarter of 2021.
GDP is likely to grow by 7.25% in 2021, which will be weaker than the previous forecast of 9%.
At the same time, the regulator’s two-year inflation forecast remained unchanged at 2%..
«Inflation is expected to be closer to 1.5% by the end of 2022. This is why we believe the bank will still have to increase its political support.», – said Ruth Gregory, economist at Capital Economics
UK economy has been bolstered by a surge in government spending fueled by debt. The Bank of England is buying many of these bonds.
Minister of Finance Rishi Sunak today I must speak in parliament, talking about the upcoming support measures.
Despite its best efforts, Britain faces the worst peak economic contraction in EU member states, Moody reported&# 39; s in October, at the same time lowering the credit rating of Foggy Albion.
Britain also faces the risk of a trade shock later this year, triggered by the details of the Brexit deal..
So far, London and Brussels have failed to conclude a new agreement. Monetary Policy Committee of the Bank of England says trade will suffer even if the deal goes through.
«There is uncertainty about the extent to which the initial adjustment of new trade agreements with the EU will affect activity», – declared at the Bank of England.