BoE pumps extra £100bn into UK economy

The Bank of England (BoE) has announced it will pump an additional £100bn into the UK economy to help tackle the financial downturn brought on by COVID-19.

Financed by the issuance of central bank reserves, the BoE’s Monetary Policy Committee (MPC) voted by a majority of 8-1 to increase its target stock of purchased UK government bonds, with the extra £100bn taking the total stock of asset purchases to £745bn.

The Committee also vote unanimously to maintain the UK’s base interest rate at its historic low of 0.1%.

UK GDP contracted by around 20% in April, following a 6% fall in March, but the BoE suggested there is evidence from “more timely indicators” that GDP started to recover thereafter. However, the Bank also stated that “other and more timely indications” from the claimant count, HMRC payrolls data and job vacancies suggest the labour market has “weakened materially”.

The BoE added that following a “stronger than expected” take-up of the Coronavirus Job Retention Scheme, a greater number of workers are likely to be furloughed in the second quarter.

Responding to the Bank's latest decisions, Kingswood chief investment officer, Rupert Thompson, commented: “The BoE, as widely expected, increased the size of its quantitative easing (QE) program by £100bn to £745bn, and a further top up is quite likely later in the summer.

“The Bank has been purchasing almost all the gilts issued in recent months to finance the COVID-related support measures and would otherwise have reached its limit in July. The bank rate, by contrast, was left unchanged at 0.1%.

“While the Bank has been looking into the possibility of pushing rates into negative territory, this would be a move of last resort and only be implemented if the economic recovery now starting to get underway runs into problems later in the year. ”

Redburn chief economist, Melissa Davies, added: “The BoE added another £100bn to their QE programme today, expecting purchases to come to an end by the turn of the year. Although the GDP outlook is proving to be less negative than feared in May, the unemployment outlook is of increasing concern along with precautionary savings behaviour by households.

“Realistically, the Government is likely to have to beef up unemployment support as the furlough scheme ends and the Bank will be in the market to help maintain low borrowing costs. The negative interest rate debate will continue to rumble on over the summer.”

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