The Bank of England pumped an additional £ 150 billion into the economy at the start of today's lockdown on fears that GDP could fall and jobs could be destroyed.
The bank has increased its mammoth bond purchase program to £ 895 billion and warns that UK plc's recovery is "weakening" before the squeeze was announced on Saturday.
Interest rates will be kept at a record low of 0.1 percent.
The economy is expected to shrink 2 percent between October and December, but the Monetary Policy Committee says the UK is likely to dodge a double recession.
Real GDP this year is expected to be 11 percent lower, worse than the 9.5 percent proposed in August. The central expectation of the bank is that the economy will not reach its level again from last year until the beginning of 2022.
According to the MPC, unemployment will peak at 7.75 percent in the second quarter of next year. The government bailouts have rolled back the worst effects of the 7.5 percent high the bank had expected this quarter. The current rate is 4.5 percent, which suggests another million people will lose their jobs.
According to the report, 5.5 million people are expected to take vacation this month – 2.5 million will need the support programs until April.
Speaking at a press conference following the announcement of the move, the bank's governor Andrew Bailey said, "We are here to do everything we can to help the people of this country – and we will and will do it quickly."
The dire assessment comes as Rishi Sunak prepares to submit the government support package for the second national lockdown, admitting that it will have "significant additional impact" on the economy.
Mr. Sunak will announce that the 80 percent vacation program will continue beyond December 2nd in all regions of the UK that are subject to Tier 3 restrictions.
The pound rose 0.3 percent to $ 1.30 as markets digested the larger than expected quantitative easing hike – essentially printing money to buy government bonds.
Real GDP is expected to be 11 percent lower this year
The central expectation of the bank is that the economy will not reach its level again from last year until the beginning of 2022
The MPC said unemployment will peak at around 7.75 percent in the second quarter of next year – with government bailouts to reverse the worst effects of the 7.5 percent high the bank expected this quarter
Chancellor Rishi Sunak will later make a statement in the House of Commons today setting out the business support that will be available during the second national lockdown
An 11 percent decline in GDP this year would be the worst in 300 years – and dwarf the downturn triggered by World War I and the Spanish flu
The bank's numbers suggest the UK will be harder hit than the US and the euro zone this year
Construction growth slows down in the warning sign
UK construction industry growth slowed in October to its lowest level in five months. This was another warning sign for the economy.
The closely monitored IHS Markit / CIPS Construction Purchasing Managers (PMI) index hit 53.1 last month, up from 56.8 in September.
Any level above 50 means an expansion of business.
The numbers suggest that the pent-up demand may have been used up.
Tim Moore, director of economics at IHS Markit who compiled the survey, said: & # 39; The construction sector was a bright spot in an otherwise dismal month for the UK economy in October.
"Another sharp spike in residential construction helped keep the construction recovery on track, albeit at a slower pace than in Q3 2020."
"The rate of Covid infections has risen rapidly since the last meeting of the committee," read the latest MPC minutes.
"The UK government and decentralized administrations have responded by tightening the severity of the Covid restrictions."
It went on: “There is evidence that consumer spending has declined on a number of high frequency indicators, while investment intent has remained weak.
The bank said its rulings assume developments related to Covid will weigh more heavily on short-term spending than projected in the August report, leading to a decline in GDP in the fourth quarter of 2020.
The effects will also be felt in the next year. Growth of 7.25 percent is expected for 2021 – below the 9 percent previously expected.
However, the MPC performed better the following year as the crisis dissipates.
The bank said the unemployment rate will peak at 7.75 percent, up from 7.5 percent in its August forecasts, with the government rising only marginally thanks to the government's move to extend the vacation benefit system.
The bank's quarterly monetary policy report shows the economy will plunge 11 percent below pre-Covid levels in the fourth quarter as non-essential businesses and many companies are forced to close during the one-month lockup period.
Post-Brexit trade disruptions will also cost around 1 percent of GDP in the first quarter of next year as the bank predicts that small businesses are not adequately prepared.
Speaking of the recent big cash injection, Bailey said, “We believe it makes sense to act quickly and decisively to support the economy and avoid the risk of short-term disruptions. "
He said the bank's work on negative interest rates will continue after failing to take the unprecedented measures today.
It is therefore that Mr Sunak is facing a request to publish financial projections on the potential impact of the new lockdown on the economy.
Mr. Sunak told the Treasury Select Committee in a letter that the new lockdown will have "significant additional impact" on the economy
The bank (pictured) has increased its mammoth bond purchase program to £ 875 billion
In a letter responding to a Treasury Select Committee request for an impact assessment, Sunak said that while recent restrictions will have an impact, it is likely to be different from what it was after the spring lockdown.
In a letter to the committee's Tory chairman Mel Stride, Sunak said schools will remain open this time around and businesses are better prepared to work from home.
But it signaled that the new lockdown will create more misery in the UK labor market and on battered corporate balance sheets.
He said: “The other restrictions announced by the government will have a significant additional impact on the economy and society.
"However, government policies are inconsistent with previous national restrictions, nor with the environment in which those restrictions take effect."
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