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Bank of England Gives Bigger-Than-Expected Boost to Slumping Economy
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November 5, 2020
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0:54Now PlayingThe Bank of England boosted its bond-buying program by a bigger-than-expected 150 billion pounds ($195 billion) in another round of stimulus to help the economy through a second wave of coronavirus restrictions.
The BOE, which now expects the economy to shrink this quarter, has eased monetary policy four times since March, flooding the economy with cash to keep borrowing costs down in the hope of spurring demand.
The low rates also give the government room to increase crisis spending without worrying about spiraling debt costs, and it may use that space to announce new aid again today.
Chancellor of the Exchequer Rishi Sunak will address Parliament on the government’s support for businesses and households later on Thursday. He will further extend the furlough program beyond Dec. 2 in those areas kept in the highest levels of coronavirus restrictions, according to the Sun newspaper, citing unidentified sources. The Treasury didn’t immediately respond to a request for comment on that report.
Such twin stimulus would continue an economic policy approach that’s one of the most coordinated among developed nations and has won praise from the International Monetary Fund.
”It is important that we take prompt, strong and coordinated action,” BOE Governor Andrew Bailey said in a press conference following the decision. “It’s an extraordinary situation, and it’s by no means over.”
Bailey and his colleagues voted unanimously to increase their government bond-purchase target to 875 billion pounds. The corporate bond-buying target stayed at 20 billion pounds, taking the total to 895 billion pounds.
Officials kept the benchmark interest rate at 0.1%. Bailey said there was nothing further to report on the BOE’s ongoing review of how negative rates might be implemented if needed.
The pound initially fluctuated, before trading 0.6% higher at $1.3069 as of 11:38 a.m. U.K. time.
The extra bond purchases, which compare with 100 billion pounds predicted by economists, will start in January and finish by the end of 2021. Officials said they are ready to step up the pace of purchases if market functioning worsens, and will “take whatever additional action is necessary” to achieve their 2% inflation target.
“We are confident that we have the headroom to do what we need to do to meet our remit,” Bailey said.
Bailey said in a Bloomberg Television interview that the central bank is considering other tools available, including guidance on the path of policy and negative rates, and has no fixed order in which it expects to use them.
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