Yesterday the Bank of England said it would add another GBP100bn to its QE programme in its ongoing efforts to support the UK economy. The additional bond buying will take the total value of the BoE Asset Purchase Facility (APF) to GBP745bn. The members voted 8-1 to increase QE purchases and as expected there was unanimous support for leaving Bank Rate at 0.10%, and interestingly no reference in the Minutes to negative rates.
The additional support comes on the back of the Organization for Economic Cooperation and Development warning that the United Kingdom would suffer the worst downturn of any major economy this year. Although there are signs that consumer spending is picking up as restrictions ease, the bank warned that it would be difficult to determine the strength of the expected recovery in the second half of the year. In a statement the central bank said ‘Even with the relaxation of some Covid-related restrictions on economic activity, a degree of precautionary behaviour by households and businesses is likely to persist’ adding ‘The economy, and especially the labour market, will therefore take some time to recover towards its previous path’.
Additionally, for the first time since 1963, the UK government’s debt exceeded 100% of its GDP. Last month, public debt rose to nearly 101% of GDP, or GBP1,950bn. In April and May alone, the government borrowed nearly GBP104bn, some GBP87bn more than in the same months last year. The government’s job retention scheme is expected to cost GBP84bn before it finishes in October and there have been billions spent on measures including relief on business rates for retailers and business support loans. As spending has soared, tax receipts have tanked. In May alone government revenue fell over 28% compared to last year.