The central bank of the UK is dedicating a further £150 billion (€166 bn) to buy up UK Government bonds in a bid to boost retail lending by banks.
The announcement comes in the wake of a second lockdown in response to the country’s high number of COVID-19 cases.
The Bank of England also kept its benchmark interest rate at a record-low 0.1 per cent.
The bank’s monetary policy committee voted “for the Bank of England to increase the target stock of purchased UK government bonds by an additional £150 billion, financed by the issuance of central bank reserves,” it said in a statement.
This will take the Bank of England’s total stimulus in response to the coronavirus to £895 billion (€990 bn).
This stimulus, known as quantitative easing (QE), allows the Bank of England to buy UK Government bonds held by retail banks to encourage them to increase lending, thereby increasing economic activity.
The approach was widely used in response to the 2008-09 global financial crisis, with trillions being pumped into the economy by central banks around the world.
The UK is now under a mandatory lockdown that is expected to last four weeks as the Government seeks to stem a second wave of COVID-19 cases.
The initial lockdown that lasted around three months until mid-June sparked Britain’s deepest recession on record.
“Since the committee’s previous meeting (in September), there has been a rapid rise in rates of COVID-19 infection,” the BoE said in a statement announcing the outcome of Wednesday’s regular policy meeting.
“The outlook for the economy remains unusually uncertain,” it said.
“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” post Brexit.
“It also depends on the responses of households, businesses and financial markets to these developments,” the BoE added.
It forecast the economy would shrink by 11 per cent this year, worse than prior guidance of a 9.5 per cent contraction.
The Bank of England also revised its outlook for 2021, predicting a rebound in GDP of 7.25 per cent – down from the 9.0 per cent increase given previously.