- The UK’s central bank is expected to add another $125 billion of monetary stimulus to boost its asset purchase program and stabilize the economy, the Financial Times reported on Wednesday.
- The Bank of England’s Monetary Policy Committee is scheduled to announce its latest monetary policy decisions on Thursday, with an extension of quantitative easing likely.
- Data released Wednesday by the country’s statistics authority showed UK inflation dropped to a four-year-low of 0.5% in May as prices for fuel and other retail goods continued to fall.
- With the UK economy shrinking by 20% in April and further job losses in May, the central bank is facing intense pressure to do more to shore up the economy.
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The Bank of England is expected to inject another fresh dose of stimulus worth about £100 billion ($125 billion) to financial markets, the Financial Times said Wednesday.
The UK’s central bank is scheduled to announce its latest monetary policy decisions on Thursday, after a Wednesday meeting of the Monetary Policy Committee (MPC), with an extension of quantitative easing likely announced. Interest rates are likely to be kept unchanged at 0.1%.
The bank’s asset purchase program allows creation of money to flow into large quantities of government bond purchases alongside a smaller scale of corporate debt purchases.
Bank of England’s latest stimulus package is expected ahead of a review of negative rates execution later in the year, FT said, although these were ruled out earlier in the year by Governor Andrew Bailey.
Official data from the Office of National Statistics showed that UK inflation dropped to a four-year low of 0.5% in May, alongside a record slump of 16.7% in fuel costs due to low global oil prices.
That dragged the UK consumer price index – which measures the variation in prices for retail goods and other items – to its lowest level since June 2016, the month in which the UK voted to leave the EU.
The UK’s benchmark FTSE 100 was up 0.8% in early European trading “as investors ignored the fact that the UK just posted its lowest inflation number since June 2016,” Connor Campbell, a financial analyst at SpreadEx, said in a note.
With the UK economy shrinking by more than 20% in April and further jobless claims in May, the central bank is under immense pressure to continue an influx of a high level of monetary stimulus.
Over two emergency meetings held earlier in March, the bank had announced an increase in its total quantitative easing program to £645 billion ($811 billion) and slashed interest rates from 0.75% to 0.25% in an effort to shore up the economy as financial market uncertainty reached “extreme levels” during the start of the coronavirus emergency.
It then cut rates again to 0.1%, the lowest level in UK history.
The British government had announced £330 billion ($414 billion) of bank loans to support businesses that were faced with distress or about to go bankrupt at the peak of the outbreak.
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