The Bank of England increased its bond-buying stimulus program to shore up the U.K. economy as the country entered a second lockdown.
As Reuters reports, the BoE’s response to the coronavirus crisis has been “one of the most aggressive among the world’s central banks.” On Thursday, it announced it would expand its target stock of asset purchases by 150 billion pounds ($195 billion) to 895 billion pounds ($1.2 trillion), almost double the level before the pandemic.
The bank also said it would keep interest rates unchanged at a record low of 0.1% as it forecast the U.K. economy will contract by 11% this year, down from its prediction in August of a 5.4% drop.
“The outlook for the economy remains highly uncertain. It is dependent on the evolution of the pandemic and the measures taken to protect public health,” the BoE said in its latest monetary policy report. “It will also depend on how governments, households, businesses, and financial markets respond to those developments.”
Around 80% of the U.K. is now locked down after the government announced at the weekend it would impose tough measures across the country to stop the renewed spread of COVID-19.
“Britain’s economy has been propped up by BoE bond-buying alongside a surge in government spending that will explode the budget deficit to around 20% of gross domestic product in 2020,” Reuters said.
Economists had expected the BoE would increase its bond buying by 100 billion pounds. It did not discuss deploying negative interest rates but said it stood ready to take whatever action it believed necessary to prevent a worse downturn in activity and to bring inflation closer to its 2% target.
“If the outlook for inflation weakens, the [bank] stands ready to take whatever additional action is necessary to achieve its remit,” it said.
The BOE projected that 2021 GDP will grow 7.25%, revised down from the 9% gain anticipated at its August meeting. In 2022, however, GDP is expected to grow 6.25% versus the 3.5% seen in August.
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