- The UK central bank announced a £150 billion stimulus on Thursday.
- The stimulus is "larger-than-expected" and will be used to fuel bond purchases.
- However, the country is not out of the woods yet, governor Andrew Bailey stated.
The Bank of England said Thursday it would buy up over £150 billion ($196 million) worth of government bonds as it seeks to revive an ailing economy as the country enters a second lockdown, financial news outlet Bloomberg reported.
The move—termed “larger-than-expected” by pundits—would help create market demand and lower borrowing costs for the government, the report said.
🇬🇧 The Bank of England boosts its bond-buying program by £150 billion in another round of stimulus to help the economy as England enters a 2nd #Covid19 lockdown https://t.co/O9mX508u3I pic.twitter.com/JfevxMnr9K
— Bloomberg QuickTake (@QuickTake) November 6, 2020
Bonds are a fixed-income instrument that represent an underlying loan and are used to raise cash from rich investors, such as hedge funds, family offices, and endowment funds.
This year, as countries around the world reel from the ill-effects of the coronavirus, governments have stepped in to buy back billions of dollars worth of bonds using new capital, a process popularly known as “quantitative easing.”
After Thursday’s move, the UK government has picked up over £200 billion ($262 billion) worth of bonds in total this year. The country’s debt has ballooned further as well: It stands above £2 trillion ($2.62 trillion) at press time.
Meanwhile, to further provide for its citizens, the UK also announced the extension of its furlough program yesterday—which would see the government pay up to 80% of the wages of 9 million people working in various sectors. The cost of this is expected to be another £25 billion ($32 billion), analysts at Bloomberg estimated.
But despite the various moves to address the economic pain, there’s still trouble ahead. The Bank of England said it expects the economy to contract in Q4 of 2020, adding to its ongoing economic woes as part of the Brexit negotiations.
“It’s an extraordinary situation,” said bank government Andrew Bailey in a statement, adding, “It’s by no means over.”
The current economic backdrop is similar to 2008’s scenario of quantitative easing and money printing, which gave birth to Bitcoin at the time, an asset not driven by centralized policies or subject to additional issuance. An asset that right now, is shooting up in price.