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Coronavirus: Government agrees emergency funding deal with Bank

A man wearing protective face mask walks past the Bank of England in the City of London

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The UK government is set to borrow billions of pounds from its emergency Bank of England overdraft to finance the fight against Covid-19.

It will borrow from the Bank’s “ways and means” facility in April to help workers and businesses.

The government has not used the facility since the financial crisis.

While it is controversial for a central bank to hand cash directly to the government, the Bank and Treasury insist the overdraft is temporary.

In the red

The ways and means facility will give the government a temporary cash buffer as it seeks to raise unprecedented amounts to deal with the coronavirus outbreak

The move comes as the latest official statistics show that the UK economy was stagnant in the three months to February, just before the coronavirus pandemic escalated and lockdown measures were introduced.

The UK’s gross domestic product (GDP) rose by just 0.1% between December and February, the Office for National Statistics (ONS) said.

The ONS said: “Before the full effects of coronavirus took hold, the economy continued to show little to no growth.”

Rob Kent-Smith, head of GDP at the ONS, said that the fall was down to wet weather and flooding seen across the UK hampering house building.

Economists had predicted that the economy would in fact grow in February.

What happens next?

Paul Dales, chief UK economist at Capital Economics, said that GDP could “fall at a speed and magnitude no-one has ever seen and no economy has ever experienced before.”

Economic activity is thought to have slowed as social distancing measures have kept people away from offices, shops, cafes and restaurants.

Mr Dales added: “What happens next depends on how long the lockdowns last and how quickly households and businesses get back to normal.

“We’ve assumed a three-month lockdown. And while GDP growth would then surge in the months afterwards, households and businesses aren’t going to be the same again for a while.”

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