The Bank of England has unleashed another £150 billion of action to bolster the battered economy and warned that output will fall in the final three months of 2020 as a result of the second lockdown.
Members of the Bank’s Monetary Policy Committee (MPC) voted unanimously to expand its quantitative easing (QE) programme to a mammoth £895 billion, but held rates at the historic low of 0.1%.
The Bank forecast that the economy will shrink by 2% between October and December, but said the UK will narrowly avoid a double-dip recession.
It said gross domestic product (GDP) will pick up in the first quarter of 2021 to 2.4%, though it warned that activity will still remain “materially lower” than before the coronavirus crisis, hampered further by the year-end Brexit deadline.
The decision came as England began a second national lockdown on Thursday.
Chancellor Rishi Sunak is also expected to outline further support to see the economy through the latest restrictions when he makes a statement later on Thursday, including an extension of the furlough scheme for areas that remain in Tier 3 restrictions.
The pound lifted 0.3% to 1.30 US dollars after the hike in QE.
The Bank said the unemployment rate will peak at 7.75%, up from 7.5% in its August forecasts, with only a marginal increase thanks to the Government’s move to extend the furlough support scheme.
The Bank’s quarterly monetary policy report shows the economy will plunge to 11% below pre-Covid levels in the fourth quarter as non-essential shops and many businesses are forced to close amid the one-month lockdown.
Trade disruption after Brexit will also knock around 1% off GDP in the first quarter of next year as small firms have been left under-prepared, according to the Bank’s forecast.
It also said there will be slow growth over the following few quarters, with the recovery to pre-Covid levels now taking longer than originally expected.
In the minutes of the latest decision, the Bank said: “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.”