The Bank of England is set to step up its money printing programme by another £100billion today as Britain careers towards a double-dip recession.
As fresh lockdown measures hammer business, central bank officials led by Governor Andrew Bailey are expected to launch another round of quantitative easing (QE) in a desperate effort to prop up the crumbling economy.
The Bank has brought forward the announcement of its plans from noon today to 7am to avoid clashing with an update from Chancellor Rishi Sunak on the Government’s latest support measures.
Emergency cash: Bank of England officials led by Governor Andrew Bailey are expected to launch another round of quantitative easing in a desperate effort to prop up the economy
The double whammy from the Bank and the Treasury comes as Britain heads for a double-dip recession, meaning output is back on a downwards spiral after a brief period of growth over the summer.
A report by the research group IHS Markit showed Britain’s once-mighty services sector has almost ground to a halt following a rebound over the summer when Covid restrictions were eased.
IHS Markit’s purchasing managers’ index (PMI) of activity in the sector fell to a four-month low of 51.4 last month from 56.1 in September, leaving it close to the 50 mark that represents zero growth.
‘The UK service sector was close to stalling even before the announcement of Lockdown Two in England,’ said IHS Markit economist Tim Moore.
He added: ‘The UK economy seems on course for a double-dip recession this winter and a far more challenging path to recovery in 2021.’
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, added: ‘Hopes of a V-shaped recovery are dead and buried.’
It took 314 years for debt to hit £500bn …and just 12 months to borrow as much AGAIN
The Bank of England’s rapidly expanding quantitative easing programme (QE) comes as Britain embarks on an unprecedented borrowing binge.
According to some estimates, the Government is on course to add £500billion to the national debt this year to deal with coronavirus.
The national debt dates back to 1692 as William III (pictured) sought to fund war with France
By way of comparison, it took Britain 314 years and a number of wars to run up its first £500billion debt.
It may be seen as handy, therefore, that the Bank is ready to print more money through QE to buy up Government debt.
The national debt dates back to 1692 as William III sought to fund war with France.
In 1694, the Bank of England was created to act as the Government’s banker. It was only in 1998 that responsibility for the national debt was transferred to the Treasury, when it was under £350billion.
It did not top £500billion until 2006, and now stands at £2.1trillion.
The Bank owns 44 per cent of outstanding Government bonds –IOUs known as gilts.
It has created £745billion of emergency QE since 2009. Some £300billion of this has come this year following the outbreak of Covid-19.
The Bank insists it is not directly financing the deficit – something that would undermine its independence – but is instead focusing on its job of controlling inflation and supporting the economy.
The Bank of England has already slashed interest rates to a record low of 0.1 per cent since the pandemic began, to encourage households and businesses to spend rather than save, and is even considering negative interest rates, which would mean customers effectively being charged, rather than paid, to keep money in banks.
But experts are predicting that the Bank’s Monetary Policy Committee will steer clear of that controversial measure, as it announces its latest policy decisions this morning, in favour of more QE.
This involves the Bank pumping funds into the economy – effectively ‘printing’ more digital money – by buying assets such as government bonds.
The Bank has already created £745billion of emergency cash through QE since the last financial crisis, including £300billion so far this year following the outbreak of Covid-19.
James Smith, an economist at ING bank, said: ‘The Bank looks poised to top up the QE programme, we think by a further £100billion this week, enabling it to continue bond purchases at the current pace until early next summer.
‘For the time being, though, that’s likely to be it. We think it’s unlikely that interest rates will be touched this week.’
The second lockdown across England, starting today, will have been a deciding factor in the Bank’s policy, Smith added.
He said: ‘We expect the Bank to give some indication of the damage, which could see 6-7 per cent shaved off November’s GDP.
‘We’d also expect the Bank to push back the timing of when the economy will reach its pre-virus levels.
Back in August the Bank projected this would happen before the end of 2021, which already seemed a bit ambitious to us.’
The economy contracted by 2.5 per cent in the first quarter of 2020 and 19.8 per cent between April and June, the sharpest slump since comparable records began in 1955.
Although evidence points to the UK bouncing back strongly in the third quarter, that momentum is expected to reverse in the last three months of the year as business battles another month of closures.
The Bank will be hoping to limit the damage, but after dropping interest rates to a record low in March, it has found itself low on tools with which to jump-start the economy.
Hannah Audino, an economist at PwC, said: ‘The Bank continues to flirt with the idea of negative interest rates.’