In what it called an 'illustrative scenario' rather than a standard forecast, the BoE said Britain's economy was on course to shrink by 25 per cent in the three months to June and for unemployment to jump to more than 9 per cent of the workforce.

Over 2020 as a whole, output was at risk of shrinking by 14 per cent - an annual decline last seen in the early 1700s when Britain was beset by natural disaster and war - despite what the BoE described as "very significant monetary and fiscal stimulus".

The central bank's scenario did, however, foresee the economy bouncing back sharply in 2021 with growth of 15 per cent as lockdown restrictions were loosened.

The BoE kept its benchmark interest rate at an all-time low of 0.1 per cent and left its target for bond-buying, most of it British government debt, at STG645 billion, as the stimulus measures taken in March continued to play out.

But in a sign more might be on the way, two of its nine policymakers - Michael Saunders and Jonathan Haskel - voted to increase the central bank's bond-buying firepower by STG100 billion, and Governor Andrew Bailey said the BoE could act again.

"However the economic outlook evolves, the Bank will act as necessary to deliver the monetary and financial stability that are essential for long-term prosperity and meet the needs of the people of this country," Governor Andrew Bailey said.

"This is our total and unwavering commitment."

He said the BoE expected "the recovery of the economy to happen over time, though much more rapidly than the pull-back from the global financial crisis."

The illustrative scenario was based on the government gradually lifting its coronavirus lockdown, that has shuttered swathes of the economy, between June and September.

Many economists expect the BoE to increase its asset purchase program in June, before the extra STG200 billion it gave itself in March is exhausted by the furious pace of its buying of British government debt.

The government has already rushed out spending and tax measures worth about STG100 billion to try to counter the effect of its coronavirus lockdown.

The BoE said inflation was likely to fall below 1 per cent in the next few months, half the BoE's target, but that recent figures suggested demand had stabilised, albeit at very low levels.

Sterling rose after the central bank's announcement, initially gaining as much as half a cent against the US dollar. British government bonds prices fell slightly.

Minutes of this week's discussions at the BoE showed policymakers thought there were risks that the illustrative scenario could prove too optimistic because people might remain cautious about resuming their normal lives after the lockdown.

Workers might be worried about their jobs and companies might also be more risk averse.

The scenario did not cover the risk of a return of the coronavirus causing a second spike in infections and renewed lockdown.

Australian Associated Press