Bank of England boosts economy by £150bn

The Bank of England will inject an extra £150bn into the economy to support with the recovery of the coronavirus pandemic.

As England begins its second national lockdown, the new restrictions are predicted to push the UK into another downturn as many businesses close their doors for the four-week period.

While it is expected to avoid another recession, the Bank of England believes unemployment will rise sharply as government support schemes come to an end. Unemployment is expected to peak at 7.75% in spring/summer next year, which will be the highest rate since 2013.

The predictions follow the results of Herefordshire & Worcestershire Chamber of Commerce’s recent economic indicator that found businesses were now having to make tough decisions in order to save costs, which included letting go of staff.

Interest rates have also been kept on hold at a record low of 0.1% – although the Bank still expects the economy to shrink in the final three months of 2020 before bouncing back in 2021 (assuming restrictions have loosened).

The Bank commented that its forecast reflected “heightened health concerns and uncertainty about the outlook”.

The Bank of England is in charge of the UK’s money supply, meaning it can create new money electronically. The Bank spends most of this money buying government bonds through a process known as quantitative easing (QE).

Government bonds are a type of investment where you can lend money to the government. In return, the government pays back a certain sum of money in the future – as well as interest accumulated.

By buying large amounts of bonds, the price of these increase and loan interest rates offered by banks to businesses and individuals are affected positively by this too.

 

If the government bond prices go up, the interest rates on those loans should go down – making it easier for people to borrow and spend money.

 

Source: BBC News

 

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