The Bank of England has come to the rescue, as the U.K economy faces its biggest contraction in more than a decade. The central bank has confirmed plans to pump $195 billion into the economy as it reels from the effects of COVID-19 as well as an uncertain outlook owing to BREXIT uncertainty.
BOE Monetary Policies
Likewise, the central bank has retained interest rate at record lows of 0.1% as it seeks to keep borrowing costs at all-time lows amid the pandemic challenges. The decision comes barely a month after the regulator asked British Banks about their preparedness for negative interest rates hinting it was contemplating the possibility of taking interest rates below the zero levels.
Along With pumping $195 billion into the economy and keeping interest rates at record lows, the Bank of England Monetary Policy has opted to expand the current stock asset purchase program to $1.2 trillion.
In a bid to cushion households hard hit by the pandemic, the government has extended its furlough program, which will see the government pay 80% of wages of employees of businesses forced to close down. The families are to get $3,270 a month.
U.K Economy Contraction
The expansion of the assets purchase program, keeping interest rates at record lows, and pumping billions of dollars into the economy is in response to the shocks fueled by the COVID-19 pandemic. The U.K economy is already feeling the effects of a second lockdown imposed to curb the spread of the deadly virus.
While the economy did grow by 2.1% in August, it was a slight improvement, having contracted by 19.8% in the second quarter. Similarly, it faces an uncertain future owing to the effects of a second lockdown, which has brought a good number of economic activities to a standstill.
Amid the headwinds, the Bank of England remains optimistic about the economy bouncing back in 2021. The central bank expects the gross domestic product to increase by 7.25% in 2021, down from a previous 9% guidance. In 2022, the GDP is expected to grow by 6.25%. Economic growth in 2021 is highly dependent on the COVID-19 pandemic being brought under control.
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