The Bank of England has said that it will pump an extra £150 billion into the economy to make the road to economic recovery following the coronavirus pandemic less difficult.
Tighter restrictions as a result of the second nationwide lockdown are likely to hinder economic growth, as was observed earlier this year. While it is unlikely that the UK economy is headed for another recession, the unemployment rate is anticipated to increase as a result of the winding-up of government support schemes that have sustained employers over the past few months.
Thousands of people have already been made redundant despite various support packages, including an extended furlough scheme, being offered to employers. A recent statement issued by the Bank said, “COVID continues to hit jobs, incomes and spending in the UK. It has put a big strain on UK businesses’ cashflow and is threatening the livelihoods of many people.”
The Bank has predicted that the economy will reduce by 2% in the final three months of the year before it begins to regain momentum by the start of 2021. This is assuming the lockdown restrictions are eased by then. Overall, the Bank estimates that the economy will shrink by 11% in 2020.
These predictions are much less optimistic than the 9.5% decrease in gross domestic product that the Bank had forecasted in August. Continued coronavirus restrictions are the main reason why the Bank has adjusted its expectations. However, experts believe that the second lockdown will be less economically damaging than the first one.
In response to the anticipated downturn, the members of the Bank’s Monetary Policy Committee (MPC) have unanimously voted to increase its purchase of government bonds through a process known as quantitative easing, which helps to inject more money into the UK economy.
By purchasing bonds, the government helps to keep inflation low, which encourages further consumer spending. It also makes it cheaper for households and businesses to borrow money by indirectly causing interest rates to decrease.
The £150 billion injection that the Bank has announced is on top of the £100 billion cash boost that it agreed to in June. This takes the Bank’s massive quantitative easing bond-buying programme for the coronavirus crisis to £875 billion.
In addition to this, the MPC left interest rates unchanged at the record low of 0.1%. While there has been talk of the Bank lowering interest rates below negative levels, financial analysts are sceptical about whether this would be effective this would be.
The Bank's announcement has come just before Chancellor Rishi Sunak is expected to deliver a statement to the House of Commons later today, which will detail further economic support that is being pledged to shore up employers over the next months. While the Bank and the MPC have welcomed the extension of these support schemes, they remain concerned about an impending increase in unemployment that is likely to affect the economy well into the new year.