In the midst of the second Covid wave and the reintroduction of the lockdown across England, the Bank of England has launched a new £150bn stimulus package for the UK economy.
The nine-member Monetary Policy Committee ( MPC) of Threadneedle Street unanimously voted to ramp up its quantitative easing bond purchase program to soften the economic fallout from rising infections and tougher restrictions.
In a move to reduce borrowing costs to help struggling businesses and households, the central bank said Covid infections had increased rapidly and its decision reflected the launch of stricter measures across the United Kingdom. At 0.1 percent, the MPC left interest rates unchanged, the lowest level in the 326-year history of the Bank.
It said: "Covid continues to hit jobs, incomes, and spending in the UK, delivering its latest economic assessment as new restrictions come into force. It has put a big strain on the cash flow of UK companies, and is threatening many people's livelihoods."
With the new measures taking the total amount injected into the QE program to £895 billion, the Bank was widely expected to take decisive action to provide additional support to Britain's virus-stricken economy well into the new year.
It comes before the chancellor, Rishi Sunak, is expected to deliver a statement to the House of Commons later on Thursday to set out an economic support package including a furlough extension for parts of the UK where lockdown restrictions remain in place beyond this month.
The MPC of the Bank said that during the English lockdown, the government's extension of furlough for one month and the chancellor's plan to substitute it with the new job support scheme would have a significant impact on job protection. It warned, however, that unemployment would still rise dramatically, reaching a peak of about 7.75% by the summer of 2021, up from the current 4.5 percent rate.
Against the backdrop of increased uncertainty over Covid, it stated that it anticipated that household spending and GDP would accelerate in the first quarter of next year, but warned that the end of the Brexit transition period at the end of December would weigh on the economy as companies adjust to leaving the EU.
Saying that an 11-hour deal between London and Brussels to establish a comprehensive trading partnership is still expected to be signed from the beginning of January, the Bank said leaving the EU would nonetheless drag down GDP by about 1% in the first quarter as tougher trading rules would be put in place and many companies were ill-prepared.
Threadneedle Street warned the British economy was heading for a double-dip recession as the resurgence of Covid and new restrictions drag down consumer spending and delay business investment.
The Bank said GDP was now expected to fall again in the final three months of the year after a sharp recovery over the summer when the Treasury's "Eat out to help out" scheme fueled an increase in spending.
It warned that Britain's economy was now expected to shrink by 11 percent in 2020, more severe than the August forecast of a 9.5 percent fall in GDP. The MPC said it expected GDP to rebound by 7.25 percent in 2021, slower than previously anticipated, forecasting a gradual recovery next year.