The Bank of England is expected to boost its bond buying programme by at least £100bn ($129.7bn) on Thursday, part of efforts to kick-start that UK’s already-faltering economic recovery from the COVID-19 crisis.
The central bank’s Monetary Policy Committee will meet to discuss whether to make changes to Britain’s interest rate and the bank’s roster of other non-conventional monetary policies.
The Bank of England said on Wednesday that it would make a policy announcement at 7am on Thursday, rather than the usual time of 12pm. The Bank said the change was “due to the Chancellor’s statement, scheduled for Thursday afternoon.”
Analysts and economists expect the MPC to announce a £100bn increase in its asset purchase facility — known as quantitative easing. The Bank of England buys bonds under the scheme in an effort to stimulate economic activity.
An increase of £100bn would last an estimated six months and take the Bank of England’s quantitative easing envelope to £845bn.
Expectations for additional stimulus come as the UK’s economic bounce back falters. Recent data has undershot forecasts and shows growth was slowing even before the imposition of restrictions to curb the spread of COVID-19.
“The surveys paint a picture of a significant loss of underlying momentum as autumn approached,” said Brian Hilliard, chief UK economist at Societe Generale.
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The recently announced second lockdown — set to come into effect across England on Thursday — “all-but-guarantees a QE top-up,” ING said. The Dutch bank estimates that the month-long lockdown will knock up to 6% of GDP in November.
The MPC is expected to cut its forecasts for the UK economy, reflecting the COVID-19 second wave and efforts to contain it.
“In the August, the BoE had an upbeat V-shaped economic projection, expecting growth to return to pre-COVID-19 levels in 2021, and inflation to return to target within the two-year policy horizon,” said Jacob Nell, head of European economics at Morgan Stanley.
In August, the Bank forecast a GDP slump of 9.5% this year, followed by a strong bounce back of 9% in 2021.
“Since then, the second wave of COVID-19 has hit the UK, leading to the introduction of more stringent social distancing measures across the country, and a weakening in high-frequency and survey data,” Nell said.
Nell and his team said the UK was now facing “a more complex W-shaped economic recovery”. Robert Wood, Bank of America’s chief UK economist, expects the MPC to move its forecasts “from a 'V' to 'U'.”
“Downward revisions to the Bank's growth projections appear inevitable,” said Sanjay Raja, Deutsche Bank’s UK economist.
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While the outlook for the UK is worsening, the MPC is expected to hold the interest rate unchanged at its record low of 0.1%.
The Bank recently began preparatory work on negative interest rates but it will take a few months for the central bank to be operationally ready for the policy. Economists also believe the MPC will want to see the impact of additional QE before opting for negative rates, which have a negative impact on the banking sector.
“While negative rates are being considered for inclusion in the Bank’s toolkit, they are unlikely to be available for use until early next year – and even then we don’t expect this policy tool to be deployed,” said George Buckley, Nomura’s chief UK and euro area economist.
“Still, if the outlook takes another turn for the worse, as the additional QE... is used up, then a package of measures incorporating even more asset purchases and negative rates is clearly not inconceivable.”
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