The Bank of England said on Thursday it would keep interest rates at a record low of 0.1% but would increase purchases of UK government bonds to £ 875 billion ($ 1.1 trillion).
Restrictions were put in place to address the rapid increase in Covid-19 cases that would affect consumer spending to a greater extent than the bank expected in August, ” led to a “decline in GDP” in the fourth quarter of this year, it added.
The Bank of England said that the close-off and unresolved negotiations on a post-Brexit trade deal with the European Union make the UK economic outlook look “unusually uncertain”. Without an agreement with the EU, UK-based companies face tariffs, quotas and other barriers to doing business with the country’s largest export market from 1 January. .
“It depends on the course of the pandemic and the measures taken to protect public health, as well as the nature and transition to new trade agreements between the European Union and the UK. It also depends on how households, businesses and financial markets react to these developments. “
The central bank expects the economy to fall 2% in the fourth quarter and 11% in 2020.
In the long run, scarring caused by the pandemic will reduce the country’s economic output by about 1.75%. GDP is expected to not exceed levels achieved by the end of 2019 until the first quarter of 2022.
A business activity survey released Wednesday found private sector activity gains last month to be the weakest since June, with declining new orders and declining jobs.
“The November shutdown in the UK and the worsening Covid-19 situation on the rest of Europe means that the UK economy seems to be getting into the wrong,” said Tim Moore, economist. This winter’s dual recession and the road to recovery is much tougher in 2021, ”said IHS director Markit, who compiled the survey.
The UK economy is expected to rebound strongly in the third quarter after suffering the biggest GDP drop of any major economy in the second quarter. It also fell 2.5% in the first three months of 2020. .