LONDON (Reuters) – The Bank of England held off from taking fresh action in its bid to stop the coronavirus crisis from plunging Britain’s economy into a long recession on Thursday, but said it was ready to ramp up its bond-buying programme further if needed.
Britain’s central bank, like others around the world, rushed to take emergency measures on two occasions earlier this month as the government shut down broad swathes of the economy.
On Thursday, it said it was not yet able to precisely assess the size of the looming hit to growth.
The BoE kept its key interest rate at a record-low 0.1% and maintained the size of its recently expanded bond purchase programme – made up mostly of British government debt and some corporate bonds – at 645 billion pounds.
“If needed, the MPC can expand asset purchases further,” the BoE said after a scheduled meeting of its Monetary Policy Committee.
“The MPC will continue to monitor the situation closely and, consistent with its remit, stands ready to respond further as necessary to guard against an unwarranted tightening in financial conditions, and support the economy.”
Facing what some economists say could prove to be Britain’s deepest recession in a century, the BoE made two emergency cuts to its key interest rate earlier this month and boosted its bond-buying programme by a record 200 billion pounds.
It has worked closely with the government which is expected to announce later on Thursday its latest stimulus measures to help fight off a surge in unemployment, an expansion of state support for wages to include self-employed workers.
“The scale and duration of the shock to economic activity, while highly uncertain, will be large and sharp but should ultimately prove temporary, particularly if job losses and business failures can be minimised,” the BoE said on Thursday.
HELP FOR SELF-EMPLOYED?
British government bond prices dropped slightly just after the decision but soon resumed their day’s rally, with 10-year gilt yields GB10YT=RR sinking to their lowest since March 16 at 0.39%, down 5 bps on the day.
Finance minister Rishi Sunak is expected to explain later on Thursday how he plans to support Britain’s 5 million self-employed workers through the crisis.
“The Bank can stand up and say that they will do whatever is necessary and of course, size does matter, but the efficacy of the response will primarily be measured by how quickly the money finds itself in the hands of businesses and consumers that need it,” Equals Group Chief Economist Jeremy Thomson-Cook said.
On Wednesday, officials said nearly half a million people filed welfare claims over the previous nine days, raising fears of a big jump in unemployment.
Last week, Sunak took the historic step of announcing that the British state would pay 80% of the wages of private sector workers, who number around 28 million, in a bid to reduce an expected surge in unemployment.
The Times reported that Sunak planned to help around 2 million self-employed by paying money directly into their bank accounts. The monthly payouts were expected to be capped and targeted at those on lower incomes, it said.
BoE Governor Andrew Bailey and other BoE officials have suggested they will not take their benchmark lending rate into negative territory because it would hurt lending.