LONDON (Reuters) – The Bank of England looks set to hold off from taking further action to help Britain’s economy through the coronavirus pandemic on Thursday as it waits to see the scale of an expected surge in unemployment.
The central bank is expected to announce at 0600 GMT that it is keeping its benchmark interest rate at an all-time low of 0.1% and its bond-buying stimulus programme unchanged at 745 billion pounds ($980 billion).
Most attention will be on the Monetary Policy Committee’s outlook for the economy, details of how sharply it will slow its bond purchases, and its latest thinking on the pros and cons of taking borrowing costs below zero.
In May the MPC said the world’s sixth-biggest economy might get back to its pre-pandemic size in the second half of next year, but since then the signs of recovery have been mixed.
Britain’s budget forecasters say unemployment will probably jump to 12% by the end of the year, three times its most recent rate and higher than the BoE’s estimate in May.
A government job subsidy programme is being wound down from this month and is due to close completely in October.
Furthermore, many Britons remain worried about the risks of catching COVID-19, frustrating attempts by Prime Minister Boris Johnson to get them back into their workplaces, leaving the centre of many big cities almost deserted.
Some economists think it could be years before the economy returns to its previous size.
However, there have been signs that consumers are spending at least some of the money they saved during lockdown: Car sales rose for the first time this year in July, and diners have taken advantage of a state subsidy for eating out.
The housing market – central to confidence in Britain – has picked up after its shutdown in April and May.
Howard Archer, an economist with EY Item Club, said the BoE probably felt it could stick with its plan to stretch the latest 100 billion-pound increase of its bond-buying programme until around the end of the year, when another expansion was likely.
Bond investors will be watching for details of the pace of those bond purchases.
Economists at Goldman Sachs said the BoE might say that interest rates could go lower than their current level just above zero, but “we do not expect any urgency in the MPC’s intention to actually cut into negative territory”.
While COVID-19 has forced policymakers around the world into emergency action, Britain faces the extra risk of a Brexit shock when a no-change period for its trade with the European Union expires at the end of 2020. No new deal has yet been reached.
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