An extra £150 billion will be pumped into the economy by the Bank of England using quantitative easing (QE) to help any recovery from Covid-19 as new restrictions and tighter lockdown rules are expected to push the UK into another downturn.
The Bank is expecting unemployment to rise as government support scheme wind down and want to avoid another recession.
In the final 3 months of 2020 the Bank expects the economy to reduce by 2% and bounce back at the beginning of 2021 if current restrictions loosen. Interest rates will be kept at 0.1%pa, a record low.
Policymakers expect the economy to decrease 11% in 2020 in GDP terms, whilst unemployment is expected to peak at 7.75% in the middle of next year, that would be the highest rate since 2013.
The Bank of England oversees how much money is in circulation in the UK’s economy, which means it can create new money electronically. The Bank spends most of this money buying government bonds through the quantitative easing (QE) process.
QE is sometimes described as “printing money” but no physical banks notes are created.
Government bonds are a type of investment where money is lent to the government and in return, they promise to pay back a certain sum of money plus interest in the future.
Buying back billions of pounds worth of government loan bonds will push the price up as demand for anything increases.
Government bond prices affect many loan interest rates offered by banks to businesses and individuals, so if government bond prices rise, interest rates on those loans reduce and make it easier to people to borrow and spend money.