Bank of England ramps up stimulus

William Schomberg and David Milliken
·2-min read

The Bank of England has increased its huge bond-buying stimulus by a bigger-than-expected STG150 billion ($A273 billion) as it seeks to cushion Britain's struggling economy against the hit from a second coronavirus lockdown.

The BoE, also wary of the risk of a Brexit shock in less than two months' time, raised the size of its asset purchase program to STG895 billion, STG50 billion more than expected by most economists in a Reuters poll.

The central bank kept its benchmark Bank Rate at 0.1 per cent, as expected in the poll, while it looks into the feasibility of taking borrowing costs below zero for the first time.

The BoE cut its forecasts for Britain's economy which it now expects to only exceed its size before the COVID-19 pandemic in the first quarter of 2022. Previously, the BoE had expected the recovery be complete by the end of next year.

The BoE said it expected Britain's economy would shrink by 11 per cent in 2020, more severe than the 9.5 per cent contraction it forecast in August.

Gross domestic product was likely to grow by 7.25 per cent in 2021, weaker than a previous forecast of a 9 per cent bounce-back.

Britain's economy, which as well as COVID-19 is facing the risk of a trade shock when its post-Brexit transition with the European Union expires on December 31, has been supported by a surge in debt-fuelled spending by the government.

The BoE is buying up many of those bonds.

Despite the spending, Britain faces the sharpest peak-to-trough contraction of any Group of 20 economy, Moody's said on October 16 when it cut Britain's credit rating.

That was before Prime Minister Boris Johnson announced a month-long "stay-at-home" lockdown for England which came into force on Thursday.