The Bank of England voted to purchase another £150bn of government bonds on Thursday in a bid to boost spending in the economy as England enters a second coronavirus lockdown.
After a unanimous vote at the central bank’s Monetary Policy Committee, the BoE will raise the total amount of quantitative easing from £745bn to £895bn.
The MPC said the action taken was in response to “signs that consumer spending has softened across a range of high-frequency indicators, while investment intentions have remained weak”.
It forecast a double-dip recession for the UK following the resurgence of coronavirus.
The monetary policymakers said they expected the economy to slow significantly in response to the second wave of Covid-19 and restrictions, but pick up again in the first quarter of next year.
There was no statement on how the MPC members expected the additional money would boost spending when borrowing costs for government, businesses and households were already at historically low levels.
The committee left interest rates unchanged at 0.1 per cent and did not consider voting to impose negative rates for the first time in the central bank’s 326-year history.
Noting that the outlook for the economy was “unusually uncertain” with the second wave of Covid-19 and the still unresolved Brexit negotiations, the BoE’s latest forecasts contained a wide margin of error.
The committee based its forecast on the assumption that the coronavirus would dissipate from a higher level than it reached when it last met in September, and on a smooth transition to a free trade agreement between the UK and the EU.
With the furlough scheme having been reinstated, the MPC expected unemployment to remain significantly lower than its forecast from September, but still rise from the current 4.5 per cent rate to 7.75 per cent by next summer.
But it warned that the UK economy was likely to suffer permanent scars from the coronavirus crisis that “would be greater the longer that the current conditions of infection, restriction and uncertainty persisted”.
Part of the way the MPC intends to encourage businesses to invest and households to spend is to commit to keeping interest rates at rock-bottom until “there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2 per cent inflation target sustainably”.
With CPI inflation at 0.7 per cent in September, it is expected to remain well below the BoE’s 2 per cent target through 2021 and only meet the conditions set by the committee for raising rates late in 2023 at the earliest.