LONDON, Nov 5, 2020 (BSS/AFP) – The Bank of England is set Thursday to
boost its cash stimulus to fight financial fallout from the coronavirus, as
England enters a second lockdown.
Concluding a regular meeting, the BoE is also likely to revise down central
bank forecasts for UK economic growth amid deadlock over Britain’s post-
Brexit trade agreement with the European Union.
The BoE is widely predicted to pump out an extra o100 billion ($130
billion, 111 billion euros) under its long-running quantitative easing
programme, bringing the total to o845 billion.
Analysts expect its key interest rate to stay at a record low 0.1 percent
as the bank refrains for now from taking borrowing costs into negative
territory for the first time.
Thursday’s decisions, which are due at 0700 GMT, come as England begins a
minimum four weeks of stay-at-home restrictions, as the UK government seeks
to stem a second wave of Covid-19 after similar actions elsewhere in Europe.
“Overall, weaker demand and rising uncertainty around a second (UK) wave
will warrant further stimulus,” said Deutsche Bank economist Sanjay Raja.
He added: “With uncertainty picking up both at home and abroad, downward
revisions to the growth outlook appear inevitable.”
The bank could also make reference to the latest financial markets
volatility sparked by US election uncertainty which puts into doubt also a
huge US economic stimulus package.
“Amid the noise of the US election and its impact on asset markets, the
Bank of England has the unenviable job of having to change course this week,”
noted Geoff Yu, senior market strategist at BNY Mellon.
“As was the case with the European Central Bank in October, the advent of
the winter wave of the pandemic has materially altered assumptions for the
economy over the short and medium term.”
UK economic recovery hopes have been shattered after Prime Minister Boris
Johnson’s decision at the weekend to put England into a second lockdown —
prompting the government to extend a significant jobs support scheme until
the end of November.
Britain has been among the worst-affected countries by the virus outbreak,
with 47,000 deaths from more than one million positive cases, but Johnson’s
decision to put England in a fresh lockdown came as a surprise.
– ‘Six-month setback’ –
The nation’s first Covid-19 lockdown that lasted around three months until
mid-June sparked Britain’s deepest recession on record.
Capital Economics research group said the second England-wide lockdown
should cause UK economic growth to fall by about eight percent in November
month-on-month, prompting the unemployment rate to hit nine percent next
year.
“Overall, this second lockdown may set back the economic recovery by six
months,” it said in a note to clients looking ahead to the BoE update.
Under QE, the BoE creates cash that is then used to purchase assets such as
government and corporate bonds, with the aim of boosting lending and
stimulating economic activity. The bank first embarked upon the policy in the
wake of the global financial crisis.