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Bank of England, UK to signal more radical action against coronavirus slump

Reuters | London | Updated: 26-03-2020 14:27 IST | Created: 26-03-2020 14:14 IST
Bank of England, UK to signal more radical action against coronavirus slump
Representative Image Image Credit: Wikimedia

The Bank of England is expected to say on Thursday that it is ready to take further radical action to prop up the economy and Britain's finance minister will announce help for self-employed workers hit by the coronavirus shutdown. The BoE, which has made two emergency cuts to interest rates this month, boosted its bond-buying program by a further 9% of British economic output, and taken a string of other measures to help to lend, is likely to hold off on further action when it makes a statement at 1200 GMT after its scheduled March meeting.

But Governor Andrew Bailey, who has been in the job for less than two weeks, and his fellow top BoE officials are likely to say they will take further radical measures - probably another increase in their quantitative easing program - if needed to steer Britain's economy out of its expected slump. This week, the U.S. Federal Reserve took the unprecedented step of saying it will expand its asset purchases by as much as needed to stabilize frantic financial markets.

"Our guess is... that no further purchases will be announced tomorrow," JPMorgan economist Allan Monks said in a note to clients on Wednesday. "But we think the BoE will end up announcing additional asset purchases by the May meeting, especially if it becomes clear that the fiscal deficit is likely to exceed 10% of GDP as we suspect."

Bailey and other BoE officials have suggested they will not cut their benchmark lending rate from its new all-time low of 0.1% into negative territory because it would hurt lending. The BoE ad other top regulators announced a welter of measures on Thursday to give banks more leeway for handling troubled loans.

Shortly after the central bank's announcement, finance minister Rishi Sunak is expected to explain how he plans to support Britain's 5 million self-employed workers through the crisis. 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. He has unveiled a string of other huge, debt-funded stimulus measures. But the 39-year-old former Goldman Sachs analyst has faced criticism that uncertainty about how the government will help the self-employed has left many independent workers with little choice but to ignore calls to stay at home.

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 for those on lower incomes, it said. The scale of the hit to the economy - some forecasters are warning of the deepest recession in a century - and prolonged uncertainty about how long the shutdown will last mean further action is likely ahead.

"UK policymakers have launched massive fiscal and monetary support which will help enormously," said Brian Hilliard, an economist with SocGen. "But we fear that the damage is so great, and still mounting, that more measures will be necessary - and in a matter of days, not weeks."


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