The Bank of England (BoE) has expanded its virus crisis support for the economy by £150bn, while warning of a deeper hit from the return to tightened COVID-19 restrictions.
The latest meeting of its Monetary Policy Committee (MPC) kept interest rates at their record low of 0.1% – defying speculation among some commentators that it could opt for negative rates for the first time in its history to encourage lending by banks and spending.
As England entered its second lockdown of the year, the Bank said its decision to unleash more quantitative easing (QE) now would help oil the wheels as large parts of the economy grind to another enforced halt.
The decision also reflected, the bank said, an “initial period of adjustment” to be expected following the conclusion of the Brexit transition period, saying its influence was based on the assumption of a trade deal being agreed by the year’s end.
It announced the additional aid hours before the chancellor was due to update MPs on the support available to businesses and their staff from the government.
The size of the BoE’s QE, or asset purchase programme, now stands at £875bn.
It allows the bank to release cash into the economy to support everyday activities.
The Bank, in its update on Wednesday, said the extra £150bn of aid reflected its latest forecasts that the economy would remain below its pre-pandemic peak through the first quarter of 2022.
It had previously expected the recovery to have been completed next year.
However, it stopped short of forecasting a so-called double dip recession as it expected that output, following a lockdown hit in the current quarter, would be positive during the first three months of 2021.
It now expected that gross domestic product would fall by 11% in 2020 as a whole.
Before the resurgence in coronavirus disruption, it had forecast a 9.5% hit.
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