Bank of England: The UK economy is returning to recession

Bank of England: The UK economy is returning to recession

The UK central bank said on Thursday it would keep interest rates unchanged at a record 0.1%, but would increase UK government bond purchases to 75 875 billion ($ 1.1 trillion).

The restrictions imposed to deal with the rapidly rising Covid-19 cases will burden consumer spending more than the bank projected in August, “leading to a decline in GDP” in the fourth quarter of this year, he added.

England is back in national lock on Thursday, with restaurants, bars and non-core businesses closed until 2 December. The United Kingdom reported the second-largest daily increase in Covid-19 cases on Wednesday, with 25,177 new infections reported in 24 hours.
In a bid to soften the blow to households and businesses, UK Treasury Secretary Rishi Sunak announced on Thursday that the British government would expand program until March 2021. The government will pay 80% of the salaries of employees of companies that are forced to close, with a maximum of 00 2,500 ($ 3,270) per month.

The blockade and unresolved talks on a post-Brexit trade deal with the European Union have left the outlook for the UK economy “unusually uncertain”, the Bank of England said. Without an EU agreement, UK-based companies face huge tariffs, quotas and other barriers to doing business with the country’s largest export market since 1 January.

“It depends on the evolution of the pandemic and the measures taken to protect public health, as well as on nature and the transition to new trade arrangements between the European Union and the United Kingdom. It also depends on the responses of households, businesses and financial markets in these developments. “

The central bank expects the economy to shrink by 2% in the fourth quarter and by 11% in 2020.

In the long run, the scars caused by the pandemic will reduce the country’s economic output by about 1.75%. GDP is not expected to exceed the level reached at the end of 2019 until the first quarter of 2022.

A business survey released Wednesday showed that private sector activity growth last month was the weakest since June, with new orders falling and employment falling.

“The November lockout in England and the deteriorating Covid-19 situation across the rest of Europe means the UK economy looks on track for a double-dip recession this winter and a much more difficult path to recovery in 2021.” said Tim Moore, chief financial officer at IHS Markit, who conducted the research.

The UK economy is expected to recover sharply in the third quarter after suffering the biggest decline in GDP of any major economy in the second. It also fell by 2.5% in the first three months of 2020.

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