The Bank of England announced, this Thursday morning, a strengthening of 150 billion pounds of its asset buyback program, to bring it to 895 billion. Analysts expected an increase of “only” 100 billion. The central bank, on the other hand, leaves its key rate unchanged at 0.1%.
This is yet another boost from the Bank of England to the UK economy to help it cope with the damage caused by the coronavirus pandemic. The Bank of England (BoE) announced this Thursday morning a strengthening of 150 billion pounds of its asset buyback program, to bring it to 895 billion during the year 2021.
The decision was taken unanimously. Most economists polled by Reuters expected it to be content with a £ 100 billion hike. ” Announcing new asset buybacks now should help ensure that the inevitable short-term slowdown in activity is not amplified by a tightening monetary environment. », Explained the institution. There was an advantage to “ act fast and strong “, Said BoE Governor Andrew Bailey.
With the return of health measures, the scenario of a double-dip recession seems more and more credible and the major central banks are on the verge of war. The ECB, which let it be understood last week that it would increase its intervention capacity at the end of its December meeting. The Fed, it must communicate this Thursday evening. Some financial market professionals believe that the shift away from the prospect of massive budget support to the United States is putting pressure on it to ease its monetary policy even further.
More than what economists expected
The “quantitative easing” program, which had already been inflated by 200 billion pounds in March and then by another 100 billion in June, is crucial to ensure the stability of financial markets at a time when the State is forced to massively increase its costs. debt issuance to help the economy weather the storm of the epidemic. By creating money to buy debt issued by the Treasury – and to a lesser extent that issued by corporations – the Bank of England saves it from having to worry about finding buyers, and helps to maintain advantageous levels the interest rates it has to bear.
If the BoE is boosting its asset buyback program in this way, it is because it has clouded its growth forecasts because of the re-containment measures imposed across the United Kingdom. England has indeed reconfigured this Thursday until December 2, and then plans to return to the regional containment system at three levels (moderate, high or very high risk areas) put in place by the government in mid -October.
The central bank estimates that Britain’s GDP will ultimately fall by 11% in 2020, where it had previously forecast only a 9.5% drop. The 2021 rebound is not expected to exceed 7.25%, compared to 9% forecast in the latest forecast for August. This should not allow the economy to return to its pre-pandemic level before the first half of 2022, instead of 2021.
Thanks to the rebound this summer observed after the first spring containment, the Bank of England expected growth of 5.5% over the last three months of the year. But taking into account the new restrictive measures, it only forecasts a contraction of 2% for the last quarter. As for the rebound in the first quarter of 2021, it should be limited to 2.4%, in particular due to a temporary shock of around 1 point linked to Brexit, linked in particular to the lack of preparation of small businesses for the new customs constraints.
The Bank of England, on the other hand, left its key rate unchanged at 0.1%. Will she eventually go so far as to lower them below zero, as she thinks about it? In any case, some are wondering about the reduction in its room for maneuver to buy more assets. According to the “Financial Times”, it already owns 44% of government-issued bonds, double what the Fed has in treasury bills. And if her statutes allow her on paper to go up to 70%, she might feel uncomfortable long before.
Leaks at the Bank of England?
The decision announced by the Bank of England on Thursday morning might have surprised financial market operators less if they had read the Sun the day before. The British newspaper said that the central bank’s asset purchase program was to be expected to increase by around £ 150bn, or even maybe £ 200bn, when economists predicted 100bn. billion. Bank of England Governor Andrew Bailey is taking the matter very seriously. An investigation should be conducted into the Sun article, which also obviously had information about measures that Chancellor of the Exchequer Rishi Sunak was preparing to announce.