LONDON, Nov 05 (BBC): The Bank of England (BoE) is to pump an extra £150bn into the economy as it warned the resurgence of Covid-19 would lead to a slower, bumpier recovery.
Tighter lockdown rules, including new restrictions in England, are expected to push the UK into another downturn.
While the economy is expected to avoid another recession, the Bank believes unemployment will rise sharply as government support schemes wind down.
Policymakers also kept interest rates on hold at a record low of 0.1 per cent.
The Bank expects the economy to shrink by 2.0 per cent in the final three months of 2020, before bouncing back at the start of 2021, assuming current restrictions loosen.
It does not expect the UK economy to get back to its pre-virus size until the following year.
The Covid-19 pandemic triggered the sharpest economic contraction on record earlier this year as nationwide restrictions were brought in to try to contain the virus.
Shoppers helped the economy to bounce back over the summer, and the Bank said retail sales remained strong.
Some people had started their Christmas shopping early, while others were buying furniture and household goods to adapt to working from home.
However, it said the hospitality, leisure, and tourism sectors had "suffered from lockdown rules".
Many diners had stopped going to restaurants after the end of the Eat Out to Help Out scheme. The Bank said more than a third of people still felt uncomfortable dining in.
Fresh restrictions across the UK are expected to drag on growth. The Bank expects the economy to shrink by 11 per cent in 2020.
Thousands of people have already lost their jobs amid the pandemic, despite various support packages, including an extended furlough scheme.
Redundancies have climbed to their highest level since 2009 in recent months.
The Bank expects unemployment to peak at 7.75 per cent in the middle of next year, from 4.5 per cent currently. This would be the highest rate since 2013.
This represents a deeper downturn, and slower recovery than predicted in August.
Chancellor Rishi Sunak is expected to announce fresh measures to support the economy on Thursday.
The Bank of England is in charge of the UK's money supply - how much money is in circulation in the economy.
That means it can create new money electronically and the Bank spends most of this money buying government bonds through a process known as quantitative easing (QE).
QE is sometimes described as "printing money" but in fact no new physical bank notes are created.
Government bonds are a type of investment where you lend money to the government. In return, it promises to pay back a certain sum of money in the future, as well as interest in the meantime.
Buying billions of pounds' worth of bonds pushes the price up: when demand for anything increases, the price usually goes up too.
The Bank's Monetary Policy Committee (MPC) that sets interest rates said its forecast reflected "heightened health concerns and uncertainty about the outlook".
Its nine members voted unanimously to increase its stockpile of asset purchases, known as quantitative easing (QE), and signalled they were ready to unleash more stimulus if the recovery falters.
