BoE pumps extra £150bn into UK economy

An additional £150bn is being pumped into the UK economy by the Bank of England (BoE) as the country enters a second lockdown

The Monetary Policy Committee (MPC) at the BoE also voted unanimously to maintain the Bank’s base rate at 0.1%.

The Bank revealed that its MPC has agreed to increase its target stock of purchased UK government bonds by an additional £150bn in order to meet its inflation target in the medium- term, which now takes the total stock of government bond purchases to £875bn.

Household spending and GDP are expected to pick up in the first quarter of 2021 as coronavirus restrictions across the country loosen. The Bank stated that GDP is projected to “recover further” as the direct impact of COVID-19 on the economy is “assumed to wane”.

Commenting on the move from the BoE, AJ Bell financial analyst, Laith Khalaf, said: “The Bank is beginning to run out of dry powder as it now holds almost half the gilt market, and interest rates are already close to zero.

“That means if the central bank wants to boost the economy further, it may resort to even more extraordinary measures than we have today. Negative interest rates are certainly on the table.
“Much will depend on how the pandemic, social restrictions and the government’s fiscal response proceed from here. For the moment, markets are pricing in a 40% chance of an interest rate cut next year, and it’s fair to say that markets have consistently underestimated the capacity for monetary policy to loosen ever since the financial crisis.
“The BoE is now forecasting an 11% drop in GDP in the last three months of this year. It then projects growth through next year, reaching pre-COVID levels by the end of the year, on the premise that social restrictions loosen and the pandemic’s impact on the economy begins to wane. Let’s hope they’re right, even though that looks like a heroic assumption right now.”

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