THE Bank of England has moved to support the UK’s battered economy by committing to purchase an additional £100 billion of UK government bonds.
The Bank’s Monetary Policy Committee voted by a majority of eight to one in favour of the fresh monetary stimulus, financed by the issuance of central bank reserves, at its meeting on Wednesday. Members also voted unanimously to maintain the base rate at the historic low of 0.1 per cent.
The move by the MPC comes after official figures showed UK gross domestic product (GDP) had plunged by 20.4% in April, following a 6% fall in March, as output collapsed with the country in full lockdown to halt the spread of coronavirus. The UK economy is expected to have plunged into recession in the second quarter.
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“The emerging evidence suggests that the fall in global and UK GDP in 2020 Q2 will be less severe than set out in the May Report,” the minutes of the MPC meeting state. “Although stronger than expected, it is difficult to make a clear inference from that about the recovery thereafter. There is a risk of higher and more persistent unemployment in the United Kingdom.”
Official data published this week showed a surge in the number of people claiming benefit because of unemployment to 2.8 million in May, up 1.6 million since March.
Liz Cameron, chief executive of Scottish Chambers of Commerce, said: “The Bank of England’s decision to significantly expand quantitative easing reflects the unprecedented impact of coronavirus on the UK economy. It is vital that the Bank works with financial institutions to ensure that it translates into on-the-ground support for businesses.
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“The further loosening of monetary policy is welcome, but focus should remain on efforts that will help kickstart an economic recovery. This should include taking steps to close the remaining gaps in government support, including giving businesses direct incentives to invest, train and hire. Both the Scottish and UK Government need to pause any initiatives that add to the cost of doing business and review any policies that can reduce the cost of doing business. This is essential if businesses are to start building up much needed confidence.”
The MPC minutes state members agreed to increase the stock of government bonds by £100bn to meet the inflation target of 2%.
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