In its monetary policy meeting on Thursday, the Bank of England increased its already huge bond-buying programme by a larger-than-expected £150 billion as it anticipates more economic damage from new coronavirus lockdowns as well as from Brexit.
The nine-member Monetary Policy Committee (MPC) unanimously decided to raise the size of the asset purchase programme to £895 billion from £745 billion. Economists were expecting an expansion of £100 billion. The MPC also voted 9-0 to hold the interest rate at 0.10 per cent.
The central bank expects the economy to shrink by two per cent in the final three months of 2020, before bouncing back at the start of 2021, assuming current restrictions loosen.
Meanwhile, eurozone retail sales declined more than expected in September after recovering in August, data published by Eurostat showed on Thursday.
Sales dropped by two per cent month-on-month in September, worse than the 1.2 per cent fall expected by economists.
The volume of retail trade decreased by 2.6 per cent month-on-month for non-food products, by 1.4 per cent month-on-month for food, drinks and tobacco products and by 0.2 per cent month-on-month for automotive fuels. On a yearly basis, growth in retail sales halved to 2.2 per cent from 4.4 per cent in August. Economists had forecast a 2.8 per cent rise.
The decline in eurozone retail sales brings them back to the level seen before the pandemic but things are likely to get much worse before they get better, as new lockdown measures will hit the retail sector heavily, Bert Colijn, an ING economist said.
Finally, in the US, the services sector expanded for a fifth consecutive month in October, albeit the pace of growth was slower than in September, suggesting increasing weakness amid rising COVID-19 infection numbers.
The ISM Services Purchasing Managers’ Index (PMI) for October fell to 56.6 from the September reading of 57.8. Economists expected the services PMI to be at 57.5. Readings above the 50 mark indicate expansion in activity.
“There is a degree of uncertainty due to the pandemic, capacity constraints, logistics and the elections,” said Anthony Nieves, chair of the ISM Services Business Survey Committee.
In contrast to the services sector, the ISM Manufacturing PMI for October, released earlier in the week, showed US factory output picking up strongly.
This report was compiled by Bank of Valletta for general information purposes only.