The Bank of England to pump extra £100bn into the UK economy to help fight coronavirus-lockdown recession
The Bank of England to pump extra £100bn into the UK economy to help fight coronavirus-lockdown recession
What would you do with £1 million?
What would you do with £1 billion or one thousand times a million? How about £100 billion?
The Bank’s Monetary Policy Committee (MPC) voted to pump £100 billion into the system days after governor Andrew Bailey said policymakers were ready to take action after the economy suffered its biggest monthly fall -20.4% – on record in April.
The UK central bank also voted to keep interest rates at a record low of 0.1% after official jobs data showed the number of workers on UK payrolls plummeted by 600,000 between March and May.
However, recent indicators of economic activity suggest the economy is starting to bounce back.
The MPC’s June policy meeting minutes stated: “Payments data are consistent with a recovery in consumer spending in May and June, and housing activity has started to pick up recently.”
What is QE or quantative easing?
This latest round of monetary stimulus – quantitative easing (QE) or printing money – increases the Bank’s asset purchase programme to a whopping £745bn.
In short, the Bank of England will “create” or print money which is then used to lend, through the purchase of bonds, to institutions. In theory, banks should in turn lend more cash – at low interest rates – to people and businesses to help grow the economy.
The QE policy was first used to the tune of £200 billion during the 2009 financial crisis to rescue the economy after the collapse of many banks. The bank has already exceeded that by almost 400%.
Critics argued that the banks failed pass on this money to small business and mortgage borrowers. In fact, mortgage money dried up, as it is now with the Nationwide and other lenders restricting house purchase borrowing.
We are not in a banking crisis so there should not be a shortage of capital. So why are the banks holding out?
In the current economic climate, the banks are being cautious for fear of a further downturn or longer-term recession.
The financial package should see more money going into shares and business which will encourage investment and restore confidence in markets.
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