LONDON | The Bank of England could announce an expansion of its asset repurchase program on Thursday to help the UK deal with the deep economic crisis brought on by containment due to the COVID-19 pandemic.
This extension of QE (for quantitative easing), which had already been increased by 200 billion pounds ($ 338 billion) and brought to 645 billion ($ 1,092 billion) at the start of the pandemic, is largely expected. by observers.
Already, at the last meeting in early May, two of the nine officials on the bank’s monetary policy committee had voted to increase the program by £ 100 billion ($ 170 billion). And Governor Andrew Bailey hadn’t shut the door on future monetary easing if necessary.
He reiterated recently that the Bank of England stands ready to act.
QE’s policy is to buy debt and therefore inject liquidity into the economy, in order to stimulate activity. These massive takeovers also help keep the rate at which the government owes to finance its aid measures low.
In contrast, the key interest rate set by the Bank of England, currently at 0.1%, an historic low, should not budge, although speculation around a negative rate has been rife in recent weeks .
“If the Bank were to announce a greater easing, we think it would like to keep some firepower for the end of the year and to be able to announce a set of measures in the event of a slippage in the recovery”, underlined Barclays analysts. Inflation fell to 0.5% year on year in May, a level seen more since June 2016.
“The further fall in inflation in May is probably just the start of a prolonged period of very weak price pressure which we believe should lead to further quantitative easing by the Bank of ‘England’, reacted the research house Capital Economics.
Slower than expected recovery
If the Monetary Institute expects a 15% GDP rebound in 2021, after a 14% collapse in 2020, caution remains in order. The Governor of the Bank of England said in late May that the economic recovery may be “longer and more difficult” than anticipated.
If “there are reasons to believe that economic activity will rebound at a faster rate than in many past recessions (…), it is also possible that the pace of the recovery in activity is limited by the persistent prudence of households and businesses, even if the official measures of social distancing are relaxed, “he said in a column on the website of the newspaper The Guardian.
For now, the current guidelines set the distance between each person at two meters to avoid the risk of contamination. But the pressure is on the government to reduce this distance to give a boost to bars, restaurants and hotels, whose reopening is scheduled for early July.
While the health situation seems to be improving in the United Kingdom, the country remains the most mourning in Europe, with more than 40,000 victims, and the third worldwide, behind the United States and Brazil.