Bank of England holds rates and launches £100 billion extra quantitive easing

The Bank of England held interest rates at a record low of 0.1% today and pledged to throw another £100 billion at the UK economy via so-called quantitative easing.

City economists think that is highly unlikely to be the last intervention and that negative rates could be just around the corner.

The Bank’s Monetary Policy Committee (MPC) is nine strong. It voted unanimously to keep rates steady and 8-1 to increase QE. Andy Haldane, the Bank’s chief economist was the outlier. He believes the economy is coming back strongly enough as it is.

The money will be used to buy government bonds via central bank reserves, taking the total QE so far to £745 billion.

Since the start of the pandemic, the BOE has cut rates twice from 0.75% to 0.1%.

The Bank’s latest monetary policy decision comes as the UK economy attempts to recover from an unprecedented 25% contraction across March and April as lockdowns forced by the pandemic hit activity.

While fears of a huge economic collapse have been staved off through a bout of supportive measures, that stability is hugely dependent upon the likes of Bailey and Chancellor Rishi Sunak maintaining their support until a medical solution can be found.

Thomas Pugh at Capital Economics said: “We think today’s decision to keep rates on hold and increase quantitative easing by £100bn is unlikely to be the last act of policy loosening. And while we wouldn’t rule out the Bank of England cutting interest rates into negative territory, we aren’t expecting it to. Instead, we think the Bank will announce a further £250bn of QE over the course of the next year, much more than the consensus expects.”

The Bank said in its own commentary: “Risky asset prices have recovered further from their March lows, although they have remained sensitive to news on the evolution of the pandemic.”

Stock markets have been rocky, lately signalling pessimism that the worst is yet to come rather than hope that the worst is past.

Andrea Olivari, co-founder at digital lender Selina Finance said: " With lockdown restrictions gradually lifting and businesses reopening, we should begin to see some signs of recovery. However, if this and the quantitative easing measures don’t reverse the current economic decline, we could still see something more radical on interest rates."