UK economy gets £150 billion QE boost

The Bank of England is to pump an additional £150 billion into the UK economy in the latest bid to offset the economic damage caused by the Covid-19 pandemic.

David Sapsted

5 November 2020

Predicting the nation's GDP would shrink by 11% this year, the bank hopes the latest quantitative easing boost will give banks the confidence to keep lending to businesses and households.

QE: going "big" in an attempt to overcome the worst economic effects of the coronavirus

Economists had been expecting a £100 billion boost to QE but the fact England has just gone into another, month-long lockdown because of the pandemic apparently prompted governor Andrew Bailey and the Monetary Policy Committee (MPC) to 'go big' in an attempt to overcome the worst economic effects.The Bank said, “We stand ready to take further actions if necessary to help the economy recover and ensure that inflation returns to our 2% target."Covid continues to hit jobs, incomes and spending in the UK. It has put a big strain on UK businesses’ cash flow, and is threatening the livelihoods of many people."Spending in the economy remains well below normal levels. The rapid rise in cases of Covid and the recent measures taken to contain the virus will reduce spending further."

Coronavirus: UK economy hit harder than in the EU and US

The economic effects of the pandemic have hit the UK economy harder than in the eurozone and US, mainly because Britain's GDP is so heavily reliant on services."The outlook for the economy remains unusually uncertain," said the bank as it announced that interest rates would be held at 0.1%."It depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom.“It also depends on the responses of households, businesses and financial markets to these developments.”The bank expects the economy to shrink by 2% in the final quarter of this year before starting to recover early in 2021. However, it does not expect the economy to get back to its pre-pandemic size until the following year.

Confederation of British Industry: the "Bank's willingness to go above and beyond to support activity"

Alpesh Paleja, lead economist at the Confederation of British Industry (CBI), commented, "Further asset purchases once again illustrate the Bank’s willingness to go above and beyond to support activity. With an increasingly murky economic outlook ahead, a further loosening of monetary policy will give reassurance to the business community.“But monetary policy can only do so much, and as restrictions on activity tighten amid rising infection rates, sectors that remain under pressure may very well need further support.“In the meantime, there are five clear steps that are needed to help the economy weather the winter storm. We need to keep covid-secure firms as open as possible, provide assurances that the government’s financial and employment support will last the course, put in place a transparent exit plan for lifting lockdown, roll out mass testing without delay, and involve business in decision-making.”

Pantheon Macroeconomics: MPC forecasts "optimistic"

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, described the bank's Monetary Policy Committee's economic forecasts as optimistic."The MPC's forecasts have been updated for the new lockdown plans, but assume that the Covid hit to the economy gradually dissipates and that there is an immediate move to a free trade agreement with the EU in January; the risks to the outlook are skewed to the downside," he said.

JP Morgan: with interest rates already near zero, limited options for many central banks

Karen Ward, chief markets strategist at JP Morgan, said pushing interest rates into negative territory was the "direction of travel" for many central banks."It tends to be large corporates that really face those negative interest rates, but this really is about just exercising any tools they still have available because, of course, with interest rates already near zero, they're getting more limited in what they can do," she said.