In a bleak assessment, the Bank said economic output will shrink by 14 percent this year in the worst annual fall since records began. It said GDP could plunge by nearly 30 percent in the first half of the year before recovering some ground. But the impact of the deadly disease will continue to be felt long afterwards with unemployment jumping from 4 percent to 9 percent, meaning another 1.5 million people could be out of a job.
The grim economic outlook estimated for 2020 would be the biggest recession since 1709 when the Great Frost brought fledgling economies grinding to a halt across Europe.
However, the Bank said the economic fall should be temporary and that activity is expected “pick up relatively rapidly” as lockdown is eased this month.
But it would take more than a year for the economy to recover from when the lockdown is fully lifted.
The grim forecast came as the Bank held interest rates at the historic low of 0.1 percent after recent emergency action.
Bank Governor Andrew Bailey, who only took on the top job in March, said: “We expect the recovery of the economy to happen over time, although much more rapidly than the pull-back from the global financial crisis.
“Nonetheless, we expect that the effects on demand in the economy will go on for around a year after the lockdown starts to lift.
“We expect that there will be some longer-term damage to the capacity of the economy, but in the scenario we judge these effects to be relatively small.”
He added the Bank stood ready to support the economy further.
“There’s a commitment and a determination to take action should we need to,” he said.
Downing Street acknowledged that the coronavirus lockdown was having a “huge impact” on the economy but warned the effect would be even more severe if there was a second spike.
The Prime Minister’s official spokesman said: “We fully understand the huge impact which the measures which we are taking are having upon the economy but what would be worse for the economy would be to ease those measures too soon and to have a second spike.
“That is not only the view of the Government but also the view of the Governor of the Bank of England.”
The Bank’s Monetary Policy Report showed gross domestic product (GDP) is likely to fall by around 3 percent in the first three months of 2020 and then plunge by a further 25 percent in the second quarter, though it said there was uncertainty over the forecasts.
Britain’s unemployment rate could hit 9 percent in the second quarter as the lockdown hammers firms across the economy, but it said Government schemes will help soften the blow, with six million people expected to be furloughed.
While the Bank is expecting annual GDP to soar back up to 15 percent in 2021, it warned the bounce-back will be held back as Britons continue some voluntary social distancing measures even after lockdown restrictions are eased.
The Bank’s forecasts are slightly more optimistic than the outlook given by the Office for Budget Responsibility, which warned the economy could shrink by as much as 35 percent by the end of the second quarter.
James Smith, research director at the Resolution Foundation, said the hit to the economy this year was equivalent to £9,000 for every family in Britain.
He said: “Faced with this huge economic hit, both the Bank and the government have made the right call in taking bold action to protect firms and families as much as possible.”
Pablo Shah, Senior Economist at the CEBR, said: “The Bank’s latest economic outlook charts a sharp, V-shaped recession over the coming months, alongside subdued inflationary pressures.
“This assumes that the coronavirus crisis represents a temporary shock to the economy.
“However, if the permanent closure of otherwise viable businesses and the severance of longstanding employer-worker and business-customer relationships generate long-term damage to the UK’s productive capacity, a different picture is likely to emerge.”
Published at Fri, 08 May 2020 05:07:00 +0000