In a bid to sustain growth and employment amid the COVID-19 pandemic, the Bank of England, Britain's central bank, on Thursday unveiled an extra 150 billion pounds (about 196 billion USA dollars) in cash stimulus and maintained its interest rate at 0.1 percent.
"The policy will provide a regular buyer of debt for government issuance at a time of increased spending, but it remains unclear how much the policy will filter through to the average person on the street, given the current restrictions".
The monetary action comes the same day that England enters a new four-week partial lockdown to help contain a surge in virus infections.
Sterling rose against the dollar and the euro after the announcements.
The BoE itself said that the labor market and other parts of the economy would be scarring from the ongoing effects of Covid-19, and estimated the economy would remain 1.75 percent smaller by the end of 2023 than the bank was before expected the pandemic hit.
The committee also voted unanimously to keep the interest rate at 0.10%. As a result of the latest contraction, it now doesn't expect the British economy to reach its pre-COVID level until the first quarter of 2022. Previously, the BoE had expected the recovery be complete by the end of next year.
The forecasts are likely to say gross domestic product will recover its pre-pandemic size only in 2022 or possibly 2023.
With the USA election still hanging in the balance, America's central bank opted not to make policy changes at its own meeting on Thursday.
The government had for months balked at calls for an extension, arguing it wasn't its role to support every job forever. BoE's stimulus of money is there to fuel the buying and selling of bonds. The bank also notes the uncertainties surrounding negotiations for the post-Brexit trade deal with the European Union. Chancellor of the Exchequer Rishi Sunak will address Parliament on the government's support for businesses and households later on Thursday.
Despite the spending, Britain faces the sharpest peak-to-trough contraction of any Group of 20 economy, Moody's said on October 16 when it cut Britain's credit rating.
The increased monetary easing was justified by the bank as a method to "support the economy and help to ensure that the unavoidable near-term slowdown in activity was not amplified by a tightening in monetary conditions that could slow the return of inflation to the [2%] target". Failure to do so would result in new trade barriers between the United Kingdom and its neighbors, who consume around half Britain's exports.
"The MPC's projections are also conditioned on the assumption that cross-border trade falls temporarily in the first half of 2021 as businesses adjust to the new trading arrangements with the European Union".