The BoE now expects that the UK economy won’t return to its pre-pandemic size until the first quarter of 2022.
That’s a downgrade – previously, the BoE had expected the recovery be complete by the end of next year.
Chart: UK economy to shrink again this quarter
This chart, from the BoE, shows how it expects the economy to contract in the current quarter.
That’s due to the Covid-19 lockdown, as well as the slowdown in global growth, the BoE says:
Informed by recent movements in high-frequency indicators of activity and announcements about Covid-related restrictions, UK GDP is projected to fall in Q4.
That largely reflects lower consumer spending on social activities, which is assumed to be partially offset by higher spending on other goods and services.
Introduction: Bank boosts QE by £150bn as lockdown begins
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
We start with some breaking news: The Bank of England has boosted its quantitative easing stimulus package by £150bn, as policymakers try to protect the economy from the coronavirus pandemic.
The Bank warned that the new restrictions imposed to combat Covid-19 mean the UK economy will shrink in the current quarter. That means Britain would suffer a double-dip downturn this year.
There are signs that consumer spending has softened across a range of high-frequency indicators, while investment intentions have remained weak…
Developments related to Covid will weigh on near-term spending to a greater extent than projected in the August Report, leading to a decline in GDP in 2020 Q4.
The expansion of the Bank’s asset purchase scheme is bigger than economists expected, and has been announced as the England’s second coronavirus lockdown begins.
The Bank also predicts that household spending and GDP will rise in the first quarter of next year, but cautions that activity will still be “materially lower” than in the last quarter of 2019.
Today’s announcement makes it clear that the BoE expects a long haul:
Over the remainder of the forecast period, GDP is projected to recover further as the direct impact of Covid on the economy is assumed to wane. Activity is also supported by the substantial fiscal policies already announced and accommodative monetary policy.
The recovery takes time, however, and the risks around the GDP projection are judged to be skewed to the downside.
The BoE is also leaving UK interest rates at their current record low of 0.1%.
This fresh injection of QE will boost the Bank’s total package to £895bn – used to buy £875bn of government bonds (plus £20bn of corporate debt).
The Bank’s move is the first part of a double-header from policymakers, with the government due to lay out new support later today.
My colleague Richard Partington explains:
Rishi Sunak is expected to announce an extension of furlough beyond December amid growing pressure from business leaders to safeguard jobs and the economy during the coronavirus second wave.
The chancellor is preparing to announce that the flagship wage subsidy scheme – which pays 80% of workers’ wages – will continue to be made available for parts of the country under the highest levels of Covid restrictions, sources said, in a major climbdown for the government.
More details and reaction to follow….
- 7am GMT: Bank of England’s inflation report
- 9.30am GMT: UK construction PMI for October
- 12pm GMT: Rishi Sunak’s statement on COVID Support
- 1.30pm GMT: US weekly jobless total
- 7pm GMT: US Federal Reserve interest rate decision