Bank of England to press on with £60bn plan to boost economy
The Bank of England confirmed it would press on with a £60 billion economy-boosting plan despite hitting an early stumbling block.
It faced a £52 million shortfall on Tuesday after it was unable to buy as many government bonds from City investors as needed under its new quantitative easing (QE) push.
Policymakers announced another £60 billion of QE last week as part of an economic recovery package as it cut rates for the first time in more than seven years, to 0.25% from 0.5%.
It was the first time the Bank had failed to buy enough so-called gilts to meet its target since first launching the QE programme in 2009 to steer the economy out of the financial crisis and subsequent recession.
The returns - or yields - on some UK government bonds turned negative after the Bank missed its £1.17 billion target.
It said it would carry on with its gilt-buying programme as planned for the next three months, but would look to catch up on the shortfall from November.
While the Bank appeared unfazed by the setback, there are fears the gilt shortfall sends an early warning of the constraints it may face in finding enough sellers to meet its £60 billion target.
But the Bank's third and final tranche of gilt buying this week saw it receive far more offers than needed on Wednesday, at £5.5 billion, with the bank buying £1.17 billion of government bonds.
The need for action to jump-start the economy was laid bare in the Bank's latest survey of firms, which showed UK companies are expecting to put hiring and expansion plans on hold as they brace for a trading hit following the Brexit vote.
The report revealed a slowdown in business services growth and consumer spending, while firms across all sectors except manufacturing expect turnover to be knocked over the year ahead.
Business services and construction firms appeared the hardest hit, although manufacturers are expecting a fillip from the weaker pound, according to the report.
It signalled the drop in manufacturing exports had been halted by the fall in sterling, which is making British goods cheaper for overseas buyers.
The report - which polled around 270 firms in the month after the Brexit vote - showed consumer d emand for large items fell as shoppers became more cautious.
But recent wet weather was also thought to be partly to blame for the drop in consumer spending.
Housing market activity is also under pressure, although some of the weakness may also be down to the usual seasonal lull and recent lower demand from buy-to-let investors after April's stamp duty hike, the report found.
It said the commercial property sector had been " materially affected" by the Brexit vote, with the investment market in London "particularly weak".
James Knightley, senior economist at ING, said : "The survey is consistent with the general consensus expectation amongst economists that the UK will experience a mild recession over the next six to 12 months.
"We therefore expect Bank Rate to be cut again in November to 0.1%, with QE eventually upped to half a trillion pounds despite the BoE's problems in purchasing bonds yesterday."