The Bank of England is to pump an additional £150bn into the economy, describing the outlook as remaining ‘unusually uncertain’ following a rapid rise in rates of Covid infections and with the UK’s departure from the EU less than two months away
At its November meeting, the monetary policy committee (MPC) voted unanimously for the Bank of England to continue with the existing programme of £100bn of UK government bond purchases, financed by the issuance of central bank reserves.
It also voted for the Bank of England to increase the target stock of purchased UK government bonds by an additional £150bn, financed by the issuance of central bank reserves, to take the total stock of government bond purchases to £875bn.
The MPC left interest rates unchanged at 0.1%, the lowest level in the Bank’s 326-year history.
The Bank of England said its decision making reflected the sharp rise in Covid infection rates, and the increasingly strict government measures on businesses and individuals being introduced to control the spread of the virus.
In its report, the MPC said there are signs that consumer spending has softened across a range of high-frequency indicators, while investment intentions have remained weak.
Household spending and GDP are expected to pick up in 2021 Q1, as restrictions loosen, but the level of activity in the first quarter is expected to remain materially lower than in 2019 Q4.
UK trade and GDP are also likely to be affected during an initial period of adjustment, over the first half of next year, as the UK leaves the single market and customs union on 1 January and is assumed to move immediately to a free trade agreement with the EU.
The MPC report noted that the extended coronavirus job retention scheme (CJRS) and new job support scheme (JSS) will mitigate significantly the impact of weaker economic activity on the labour market. The unemployment rate is expected to peak at around 7.75% in 2021 Q2.
The MPC concluded: ‘The outlook for the economy remains unusually uncertain.
‘It depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the EU and the UK.
‘It also depends on the responses of households, businesses and financial markets to these developments.’