"The announcement of a further £150bn in stimulus shows how worried Threadneedle Street is about the impact of Covid-19 on the economy."
The Bank of England’s Monetary Policy Committee has voted unanimously to maintain Bank Rate at 0.1%, but say that a "further easing of monetary policy is warranted".
The Committee agreed to increase the target stock of purchased UK government bonds by an additional £150 billion, taking the total stock of government bond purchases to £875 billion.
The MPC noted the "rapid rise in rates of Covid infection" since its last meeting and expects that "Covid will weigh on near-term spending to a greater extent" than projected in the August Report, leading to a decline in GDP in Q4.
UK trade and GDP are also likely to be affected during an initial period of adjustment, over the first half of next year, as the United Kingdom leaves the Single Market and Customs Union on 1st January and is assumed to move immediately to a free trade agreement with the European Union.
The Committee predicts that the extended Coronavirus Job Retention Scheme and new Job Support Scheme will "mitigate significantly the impact of weaker economic activity on the labour market".
Twelve-month CPI inflation increased to 0.5% in September, but remained well below the MPC’s 2% target, largely reflecting the direct and indirect effects of Covid on the economy. CPI inflation is expected to remain at, or just above, 0.5% during most of the winter, before rising quite sharply towards the target as the effects of lower energy prices and VAT dissipate. In the central projection, conditioned on prevailing asset prices, inflation is projected to be 2% in two years’ time.
In its minutes, the MPC said that it "stands ready to take whatever additional action is necessary to achieve its remit". The Committee added that it does "not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably".
Frances Haque, chief economist at Santander, commented: “The MPC’s decision to leave Bank Rate unchanged at 0.1% was expected this month, along with the decision to increase the amount of quantitative easing undertaken by the Bank of England.
“Given the recent imposition of more stringent measures designed to help reduce the number of Covid-19 cases, it was not surprising to see the Bank of England acting to help the UK economy at this time. As a result of these new measures, there continues to be a significant possibility of further rate cuts and more quantitative easing to help support the economy as we move into 2021.”
Richard Pearson, director at investment platform, EQi, added: “The Bank of England's decision today to hold rates continues the misery for savers but is unsurprising. However, the announcement of a further £150bn in stimulus shows how worried Threadneedle Street is about the impact of Covid-19 on the economy.
“With GDP set to tank again thanks to a second lockdown, the Bank will do what it can, but its conventional tools are already well-worn.
“Chancellor Rishi Sunak is updating with potential fresh financial help for under-pressure businesses and workers. Sunak has already reinvigorated the furlough scheme, but he is under pressure in other areas such as extending the stamp duty holiday.
"As such, the Bank and Treasury appear to be working in tandem again. With today the first day of lockdown, these coordinated announcements are not lacking for symbolism. But sometimes symbolism is what people need. Savers, investors and consumers rely on confidence to help sustain the economy and eventually lead us on the path to a recovery."