The Bank of England has announced that it is to expand its bond-buying program by £100bn to help the economy through the COVID-19 pandemic, which is expected to cause the worst recession in 300 years.
The Bank voted by a margin of 8-1 to increase the size of its bond-buying program, with the Monetary Policy Committee voting to keep interest rates at a record low of 0.1 percent.
The U.K. economy shrank by 20.4 percent in April, the steepest fall on record for a single month after a nationwide lockdown imposed by Prime Minister Boris Johnson on March 23.
The Bank of England said its challenge was "to respond to the severe economic and financial disruption caused by the spread of COVID-19."
In a statement the bank said: "The Committee voted by a majority of 8-1 for the Bank of England to increase the target stock of purchased UK government bonds, financed by the issuance of central bank reserves, by an additional £100 billion, to take the total stock of asset purchases to £745 billion."
In May, the Bank of England warned that the economy could suffer its worst performance in 300 years, forecasting the economy could shrink by as much as 14 percent in 2020.
However, in its latest statement it has suggested that the outlook for the economy may not be as severe as it had initially anticipated.
"Recent data outturns suggest that the fall in global GDP in 2020 Q2 will be less severe than expected at the time of the May Monetary Policy Report.
"There are signs of consumer spending and services output picking up, following the easing of Covid-related restrictions on economic activity. Recent additional announcements of easier monetary and fiscal policy will help to support the recovery."
Yet the bank warned that "downside risks to the global outlook remain, however, including from the spread of Covid-19 within emerging market economies and from a return to a higher rate of infection in advanced economies."
The bank also said that extra support was needed to support the economy and push inflation – currently at 0.5 percent – back to its 2 percent target.
"There is a risk of higher and more persistent unemployment in the United Kingdom. Even with the relaxation of some Covid-related restrictions on economic activity, a degree of precautionary behaviour by households and businesses is likely to persist", it warned.
"The economy, and especially the labour market, will therefore take some time to recover towards its previous path. CPI inflation is well below the 2 percent target and is expected to fall further below it in coming quarters, largely reflecting the weakness of demand."
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
