The Bank of England said Thursday it will keep interest rates unchanged at a record low of 0.1% but increase its purchases of UK government bonds to 875 billion pounds ($ 1.1 trillion).
He added that the restrictions imposed to address the rapid rise in Covid-19 cases will affect consumer spending to a greater extent than the bank forecast in August, “leading to a drop in GDP” in the fourth quarter of this year.
The Bank of England said the lockdown and unresolved talks on the post-Brexit trade deal with the European Union left the outlook for the UK economy looking “extraordinarily uncertain”. Without a deal with the European Union, UK-based companies face hefty tariffs, quotas and other barriers to doing business with the country’s largest export market from January 1.
“It depends on the development of the epidemic and the measures taken to protect public health, as well as the nature of the new trade arrangements between the European Union and the United Kingdom and the transition to it. It also depends on the responses of families, companies and financial markets to these developments.”
The central bank expects the economy to contract by 2% in the fourth quarter, and by 11% in 2020.
In the long term, the scarcities caused by the epidemic will reduce the country’s economic output by about 1.75%. GDP is not expected to exceed the level it reached at the end of 2019 until the first quarter of 2022.
A survey of business activity published on Wednesday showed that the increase in private sector activity last month was the weakest since June, with fewer new orders and declining employment.
“The November lockdown in England and the worsening situation of Covid-19 across Europe mean that the UK economy appears on its way to a double recession this winter and a much more difficult path to recovery in 2021,” said Tim Moore, economists. Director of IHS Markit, which compiled the survey.
The British economy is expected to rebound strongly in the third quarter after experiencing the largest drop in GDP of any major economy in the second quarter. It also contracted by 2.5% in the first three months of 2020.