The Bank of England has said the economic shock triggered by the coronavirus pandemic will be less than initially feared but the bounce-back will take longer and inflict lasting damage for jobs and growth.
Threadneedle Street’s nine-member monetary policy committee (MPC) voted unanimously to keep interest rates on hold at a record low of 0.1% as it warned Britain’s economy would shrink by a fifth in the first half of the year. It also warned unemployment would double to 2.5 million by the end of the year as job losses spiral across the country.
Although suggesting the economy was reaching a turning point, the Bank’s governor, Andrew Bailey, put Britain on notice that it would be ready to cut interest rates below zero to stimulate growth further.
“There’s some very hard yards – to borrow a rugby phrase – to come. And frankly we are ready to act should that be needed. We’ve got huge uncertainty and we’ve got a very big downside risk,” he said.
Sounding the alarm as unemployment rapidly mounts and as the continuing risks from coronavirus prevent a return to normality, the Bank said Britain’s economy would take until the end of 2021 to return to its pre-pandemic size. It also warned there would be lasting damage, with GDP still 1.5% below its pre-pandemic trajectory by 2023.
However, it said the early signs for the economy as restrictions are gradually relaxed for most of the country were more promising than previously thought, as consumer spending returns close to levels recorded in January.