Coronavirus: the government agrees an emergency financing agreement with the Bank

The UK government will borrow billions of pounds from its Bank of England emergency 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 that a central bank delivers cash directly to the government, the Bank and the Treasury insist that 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 tackle the coronavirus outbreak.

The move comes as the latest official statistics show the UK economy stagnated in the three months to February, just before the coronavirus pandemic intensified and blockade measures were introduced.

The UK’s Gross Domestic Product (GDP) increased by just 0.1% between December and February, the Office for National Statistics (ONS) said.

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

Rob Kent-Smith, ONS head of GDP, said the drop was due to wet weather and floods seen across the UK hindering home construction.

Economists had predicted that the economy would grow in February.

What happens next?

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

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

Dales added: “What happens next depends on how long the locks last and how quickly homes and businesses return to normal.

“We assume a three-month lock. And while GDP growth would increase in the months that followed, households and businesses will not be the same again for a while.”