Coronavirus: Bank of England ‘not out of firepower’, says governor

The Bank of England is “not out of firepower” if it is needed to offer further support to the coronavirus-battered economy, governor Andrew Bailey has said.

Mr Bailey has already overseen a £300bn expansion of the Bank’s money-printing scheme – known as quantitative easing (QE) – and a cut in interest rates to a record low 0.1%.

The Bank has also indicated that it has a range of “tools” that could go beyond that, such as the possibility of negative interest rates.

Other measures it has used include buying corporate debt – as well as the government bonds purchased in QE – and guidance that rates will remain low until there is “clear evidence” of recovery.

“We are not out of firepower by any means, and to be honest it looks from today’s vantage point that we were too cautious about our remaining firepower pre-COVID,” Mr Bailey said.

“But, hindsight is a wonderful thing when you have it.”

Mr Bailey was speaking at an annual meeting of central bankers usually held at Jackson Hole, Wyoming – this year taking place remotely.

The governor, who took charge at Threadneedle Street in March as the coronavirus pandemic was plunging the world into recession, argued that QE had been effective in stopping “severe market stress” from spreading to the real economy.

Mr Bailey described the COVID-19 crisis as the “first big test of the post-financial crisis world” with central banks across the world unleashing a wave of QE on an “unprecedented scale”.

“There are times when we need to go big and go fast,” he said.

However, Mr Bailey acknowledged the challenge of ensuring that central banks have enough “headroom” to act when future crises hit.

The UK economy shrank by a record 20.4% in the second quarter of the year, the biggest contraction of any of the world’s major advanced economy, plunging it into recession.

The Bank of England predicts that it will return to its pre-pandemic size by the end of the year but many economists think it will take longer than that, which will leave the Bank with more thinking to do about its stimulus options, and when it can withdraw them.

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