In a statement published today (June 18), the BoE said its Monetary Policy Committee had agreed unanimously to maintain UK interest rates at 0.1 per cent and voted 8-1 to increase its bond-buying programme by £100bn to £745bn.
The Bank had already announced in March it would buy £200bn of UK government and company debt, increasing its holdings in such bonds to £645bn. The extra £100bn announced today will only be used to buy government bonds.
Andrew Haldane, chief economist at the central bank, voted against the extra £100bn, preferring to maintain the target for the total asset purchases at £645bn as the “recovery in demand and output was occurring sooner and materially faster” than previously expected.
The BoE stated: “Evidence from more timely indicators suggests that GDP started to recover [after April]. Payments data are consistent with a recovery in consumer spending in May and June, and housing activity has started to pick up recently.
“The LFS unemployment rate was unchanged at 3.9 per cent in the three months to April.”
But minutes from the MPC meeting showed the members had judged that “further easing of monetary policy was warranted” to support the economy through the crisis.
Although recent emerging evidence suggested the fall in global and UK GDP in Q2 would be “less severe than expected”, it was difficult to make a “clear inference” about the recovery thereafter, the minutes stated.
The minutes also showed the MPC thought there was a risk of higher and more persistent unemployment in the UK as households and businesses were likely to behave precautionary despite the relaxation of some Covid-related restrictions.
The UK economy shrank at the fastest rate since records began in April as the country felt the full impact of lockdown, with GDP falling 20.4 per cent.
GDP’s monthly drop was three times greater than the fall experienced during the 2008 to 2009 economic downturn, when the economy shrank 6.9 per cent from the peak in February 2008 to the low of March 2009.
Just yesterday data showed inflation had fallen to a four-year low of 0.5 per cent in May, driven by falling fuel costs and cuts to clothing prices as coronavirus and lockdown stalled demand.
BoE governor Andrew Bailey addressed the drop in an open letter to chancellor of the exchequer Rishi Sunak, also published today, when he wrote it could “in large part” be accounted for by the effects of the pandemic and the associated “sharp reduction in economic activity”.