The Bank of England (BoE) has unveiled it will give the UK economy a further £150bn in crisis support and keep interest rates at a record low, due to the rapid rise in Covid-19 restrictions across the country.
At the Banks latest Monetary Policy Committee (MPC), members stated that the outlook for the economy remains “unusually uncertain”, with its recovery depending on the “evolution of the pandemic” and measures taken to “protect public health around the world”.
The group also voted unanimously to maintain bank rates at an all time low of 0.1%, a move which dampened months of speculation that the BoE would introduce negative interest rates in a bid to salvage the UK economy, as it was previously believed by officials that it would encourage banks to lend money.
The central bank’s decision to offer further financial support now brings the total stock of government bond purchases to £875bn, with the BoE set to continue also with its existing funding programme of £100n to the UK.
Despite this increase in financial aid, MPC members expect GDP to pick up in 2021 Q1, as “restrictions loosen”, however they reported that the level of activity in the first quarter is expected to remain materially lower than in 2019 Q4, as a result of Brexit.
The BoE said: “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.”