However, he said early signs for the economy, as lockdown measures gradually eased, looked more promising than expected, as consumer spending rebounded near pre-pandemic levels.Suggesting that the magnitude of the shock to the economy may be smaller than initially feared with the pick-up in activity, the Bank said it expects GDP to decline by 9.5. % this year – significantly less than its previous warning for a 14% drop in production.
Rather than mark the worst economic shock in three centuries, the Bank’s latest estimate for the Covid recession would put Britain on course for the worst recession since 1921 – when coal strikes, high unemployment and depression after the first world war caused the GDP to fall by 9.7. %.
After taking emergency action in March to lower interest rates to the lowest level in its 326-year history, the Bank’s nine-member Monetary Policy Committee (MPC) voted to unanimously to keep the rates unchanged at 0.1%. He also voted to keep the central bank’s quantitative easing bond buying program at the same level of £ 745 billion.
Reflecting the faster economic recovery with the lifting of foreclosures, the bank said payments data showed household spending in July was less than 10% below its start-of-year level and that the Housing market activity was returning to close to normal levels. .
Despite the relatively optimistic forecast in its Quarterly Monetary Policy Report, Threadneedle Street warned that the UK economy would take until the end of 2021 to regain the level of GDP recorded at the end of 2019. He also warned that serious risks still hung over his assessment. the persistent health risks of Covid-19 and the risk of a second wave of infections.
Although growth is picking up quickly, the Bank said it expects the pace of the recovery to slow down in the coming months. GDP is expected to rebound by 9% next year – lower than the 15% growth rate it was previously at.
Andrew Bailey, Governor of the Bank, said: “The outlook for the UK and global economies remains unusually uncertain. This will critically depend on how the pandemic unfolds, what steps are taken to protect public health, and how governments, households and businesses respond to them.
More than four months after the start of the pandemic, unemployment in Britain is rising rapidly as businesses come under financial pressure from temporary shutdowns and a significant drop in consumer demand. Unemployment is expected to reach its highest rate in eight years, at 7.5% – around 2.5 million people – by the end of the year, according to the Bank’s latest assessment, and stay above levels from before the pandemic until 2023.
The Bank said the government’s holiday wage subsidy program had prevented a larger increase in job losses, estimating that use of the support program peaked in May with the loss of 7 million jobs. However, he warned that jobs would be lost as the program is cut from the start of this month, sounding the alarm that up to 1 million jobs will likely still be cut when the program is closed. at the end of October.
James Smith, director of research at the Resolution Foundation, said the government still needs to take urgent action to protect jobs and help those made redundant.
‘While today’s forecast from the Bank of England now indicates a weaker initial economic impact from the coronavirus crisis than it predicted in May, it still gives a disturbing reading, the UK expecting to see the biggest drop in GDP among rich countries, ”he told me.