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Bank of England Expands Quantitative Easing but Keeps Interest Rates Steady

The Bank of England has boldly moved to stimulate the country’s economy, by expanding quantitative easing but leaving interest rates at their current levels. The former is tactic that sees extra money pumped into the financial system through the buying up of Government bonds.

What Have They Agreed?

The BoE monetary policy committee voted to expand quantitative easing, which means increasing its bond-buying programme by another £100 billion. This will take it up to a total of £745 billion, after it was revealed that they would otherwise have reached their limit in the next month.

Eight members of the committee voted for this measure, with only one member voting against it. They say that this asset purchase scheme will now run at a slower pace and that it will probably be finalised by the end of 2020.

The BoE has been purchasing almost all of the gilts in recent months, but the fact that the economic conditions are now stabilising means they can slow down the purchase rate. However, the rate may be increased if conditions worsen later on in 2020.

As for interest rates, they remain at the historically low figure of 0.1%. Any cut would almost certainly put this into negative territory, which some analysts believe would do more harm than good.

What Might Happen Next?

The latest reports suggest the GDP drop in the second quarter of 2020, may be lower than had been expected. This applies both to the UK and to the global economy in general. Yet, it still isn’t clear from the details how fast or slow the recovery will now be.

It has been widely speculated that the BoE may announce further quantitative easing later on this year. This could happen towards the end of the summer, depending upon how the situation evolves. Some experts think that it could reach as high as £1 trillion before the crisis is over.

There continues to be widespread speculation over the possibility of negative interest rates in the UK, with several countries around the world already in this situation. It has been suggested that this may be considered as a last resort if the economy struggles to get back on track later in 2020. An alternative is to provide new funding schemes for banks to support businesses through lending.

As the country faces up to its worst financial crisis in centuries, nothing is likely to be ruled out in the next few months The option of recovering debt by paying collection agency fees continues to give business extra flexibility in this period.

Inflation in the UK was at just 0.5% in May, which was a four-year low. On the other hand, the rate of unemployment has been climbing and the GDP fell by over 20% in April. The GBP has fallen heavily against the USD, but it is expected to recover some of the losses as the year progresses.

In their statement announcing the measures, the BoE pointed out that consumer spending and services output appear to be increasing. This comes after the Covid-19 restrictions have been eased in the UK.