Andrew Bailey spoke about twin threats to growth from renewed coronavirus lockdowns and Brexit disruption after the latest meeting of the Bank’s Monetary Policy Committee (MPC) that saw it unleash more quantitative easing (QE).
The Bank signalled that its work examining the effects on negative rates had not yet been completed.
As England entered its second lockdown of the year, it said additional QE now would help oil the wheels as large parts of the economy grind to another coronavirus-enforced halt – resulting in an expected 2% additional hit to growth by the year’s end.
The fresh QE also reflected, what the Bank called, an “initial period of adjustment” to be expected following the conclusion of the Brexit transition period, saying its influence was based on the assumption of a trade deal being agreed by the year’s end.
It saw a 1% hit to first quarter growth next year, as a result.
The Bank dug deeper hours before the chancellor updated MPs on the support available to businesses and their staff from the government, including an expansion of the furlough scheme UK-wide until March.
The size of the BoE’s QE, or asset purchase programme, now stands at £875bn – £450bn of that being introduced since March.
Bolstering the supply of money in the economy suppresses borrowing costs and supports spending and investment.
The Bank, in its update on Wednesday, said the economy would now remain below its pre-pandemic peak through the first quarter of 2022.
It had previously expected the recovery to have been completed next year.
However, it stopped short of forecasting a so-called double-dip recession as it expected that output, following a lockdown hit in the current quarter, would be positive to the tune of 2.4% during the first three months of 2021 despite the expected Brexit complications,
The Bank also upwardly revised its projections for the virus crisis hit to employment.
It said the marginal increase to a jobless rate peak of 7.75% this year from 7.5% reflected the government’s decision to extend the furlough scheme.
Minutes of the MPC’s meeting read: “GDP is projected to recover further as the direct impact of Covid on the economy is assumed to wane.
“Activity is also supported by the substantial fiscal policies already announced and accommodative monetary policy.
“The recovery takes time, however, and the risks around the GDP projection are judged to be skewed to the downside.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the bank’s QE action implied it could spin the wheel again early next year.
He explained: “The MPC’s decision to increase its holdings of gilts by £150bn over the course of 2021 implies that weekly purchases will be 25% lower on average next year than at present, though the committee has pledged to maintain the current pace of its purchases initially.”