: Bank of England boosts government bond buying in desperate race to avoid double-dip recession

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Bank of England headquarters building in London, England.

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The U.K. central bank said on Thursday that it would buy £150 billion ($195 billion) more of U.K. government bonds, as it warned of a gross domestic product fall in the fourth quarter of 2020 because of new COVID restrictions, and more uncertainties ahead when the U.K. leaves the European Union single market.

  • The Bank of England kept its key rate steady at 0.1% but the increase of so-called quantitative easing was significantly more than the £100 billion market analysts and economists had predicted.
  • The Bank said the economic outlook was “unusually uncertain,” and that the recovery starting in the first quarter of 2021 would “take time.” GDP is not expected back to its end-of-2019 level before early 2023.
  • The unanimous decision of the Bank’s Monetary Policy Committee will increase to £875 billion the stock of U.K. government bonds detained by the central bank.
  • Rishi Sunak, the Chancellor of the Exchequer, has detailed new measures to help the economy through the new, one-month national lockdown England entered into on Thursday.
  • The government had already decided to let its furlough program, whereby the government pays up to 80% of the wages of workers of companies hit by the lockdown, run until the end of December.
  • Prime Minister Boris Johnson on Thursday declined to rule out an extension of the restrictions, due to run until Dec. 2, into the Christmas season.

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The outlook: The Bank of England has sent the clear signal that it expects more fiscal stimulus, and is ready to finance it for now. The government now has the backing it needs to put deficit and debt concerns on the back burner.

But the new lockdown doesn’t just mean that the U.K. (like the rest of Europe) will be hit by a double-hit recession. It also means that the following recovery will be slower, and take longer, than thought.

Meanwhile, the central bank warns that U.K. businesses aren’t fully prepared for exiting the European single market on Jan. 1, and that Brexit will hit the economy next year. Even if a trade deal is struck with the EU, an optimistic scenario for now.

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