BOE increases stimulus again, preparing for the impact of new lockdown, Brexit

The Bank of England kept its ultra-low interest rate, as expected, but continues to look into the feasibility of taking borrowing costs below zero, and increased its massive bond-buying stimulus by bigger than expected 150 billion pounds, in its Nov 5 policy meeting.

The central bank said that would give it enough firepower to extend the stimulus through the end of 2021, as it prepared for expected big economic damage from new lockdowns and looming risk of Brexit.

The BOE said that outlook for the economy remains highly uncertain and cut its forecasts for Britain’s economy, which is expected to regain and exceed pre-pandemic levels only in the first quarter of 2022, previously expected to be complete by the end of 2021.

According to BOE’s predictions, Britain’s economy would shrink by 2% in the fourth quarter of this year, as England re-enters lockdown.
The economy is expected to contract by 11% in 2020, above previous forecast for 9.5% drop.

The BOE’s projections were also revised lower with GDP expected to grow by 7.25% in 2021, weaker than previous forecast of 9%, while unemployment was set to peak at 7.75% in Q2 2021, much higher than its latest estimation of 4.5%.

Only forecast for inflation in next two years remained unchanged at 2%, as the policymakers believe that inflation is going to be closer to 1.5% by the end of 2022.