Central bank plays it safe and raises QE by £100bn

● Majority votes to pump further cash into UK economy ● Borrowing costs held at all-time low of just 0.1 per cent

The Bank of England policymakers have pushed the button on a further £100 billion of economy-boosting action to help combat the “unprecedented” shock from coronavirus but warned over a looming jobs crisis.

The central bank said the impact of the lockdown may have been “less severe” between April and June than first feared as restrictions have begun to be eased, albeit at a different pace across parts of the UK.

But bank governor Andrew Bailey cautioned against getting “carried away” by signs the recession may not have been quite as steep as initially expected.

The bank said there were risks of “higher and more persistent” unemployment following the crisis and that the path of recovery is still unclear.

“As partial lifting of restrictions takes place, we do see signs of some activity returning,” Bailey noted. “We don’t want to get too carried away with it – we are still living in very unusual times.”

Members of the monetary policy committee (MPC) voted eight to one to expand the bank’s quantitative easing (QE) programme to £745 billion, following the extra £200bn announced in March.

Interest rates were held at an all-time low of 0.1 per cent and the bank confirmed that there had been no discussion at the latest meeting of taking rates below zero – despite mounting speculation over such a move.

Bailey said negative rates are still being assessed and the bank “won’t rule anything in or anything out”.

The extra QE, which sees the bank buy government bonds from investors, pumping money into the economy in the process, comes after official figures showed the UK economy contracted by a record 20.4 per cent in April.

But the Bank said the fall in gross domestic product (GDP) between April and June may not be as bad as it set out in gloomy May forecasts, thanks partly to a recovery in consumer spending and the housing market.

It now believes the plunge in UK GDP over the first six months of 2020 may be about 20 per cent, rather than the 27 per cent it forecast in May’s report.

William Ryder, analyst at financial services firm Hargreaves Lansdown, said: “Inflation is currently well below the bank’s 2 per cent target and is expected to fall further in the coming months.

“The bank has left interest rates where they are and doesn’t seem inclined to test negative rates. Therefore, the bank has pulled its other big lever and will print another £100bn to add to the existing QE programme.

“This isn’t a massive addition but it’s a welcome one. We don’t think inflation is an immediate risk and are more concerned by the potential for deflation in the short term,” he added.