The Bank of England expanded its quantitative easing program with additional gilt purchases in an effort to continue to protect the U.K. economy from the impacts of the coronavirus pandemic.
The central bank said Thursday that its monetary policy committee voted unanimously to increase its total asset purchase program to £895 billion ($1.16 trillion), with a jump in target government bond purchases of £150 billion. The move follows a £100 billion stimulus injection in June.
The gilt purchase target is now £875 billion, while the bank's target for corporate bond purchases remained at £20 billion. The additional purchases will be financed by the issuance of central bank reserves, the bank said in a news release.
The committee also voted to keep interest rates at 0.1%.
The increase was attributed to a rapid rise in the rate of COVID-19 infections vs. figures at the previous meeting of the committee, held in September, signs that consumer spending had softened and an assumption that developments related to the coronavirus will weigh on near-term spending to a greater extent than the bank had previously projected.
The decision was revealed as the U.K. entered its second period of national lockdown and restrictions in an effort to combat the latest wave of infections.
"The outlook for the economy remains unusually uncertain. It depends on the evolution of the pandemic and measures taken to protect public health, as well as the nature of, and transition to, the new trading arrangements between the European Union and the United Kingdom. It also depends on the responses of households, businesses and financial markets to these developments," the release said.
The size of the increase in the quantitative easing program surprised money managers — firms had been expecting a £100 billion jump. Managers also pointed out that the bank revised its GDP growth forecast for 2020 downward, to -11% from -9.5% in August. It also lowered the forecast for 2021 to 7.25% from 9% and increased its growth projection for 2022 to 6.25% from 3.5%.
"The bank considers the risks to its GDP outlook to be skewed to the downside. So do we," David Page, head of macro research at AXA Investment Managers, said in a statement.
Despite the increase in the asset purchase program, AXA executives expect the need for more stimulus next year. The firm expects a further £75 billion in quantitative easing in May, but thinks negative interest rates are unlikely.