The Bank of England’s chief economist, Andy Haldane, has insisted that Britain is enjoying a V-shaped recovery, despite concerns among rival central bank policymakers that the economy is struggling after high-profile job cuts that are expected to send unemployment higher.
Haldane, who has become a controversial figure in recent months for his comments that the UK is in the middle of a quick turnaround, said the UK economy had recovered about half of the massive fall in output that took place in March and April when the Covid-19 lockdown was most intense.
He told MPs on Monday that the economy had been growing on average at about 1% a week since May and the bounce-back in activity extended to the regions outside London and the south-east.
“Roughly half of the roughly 25% fall in activity during March and April has been clawed back over the period since,” he said. “We have seen a bounce-back. So far, it has been a V. That, of course, doesn’t tell us about where we might go next.”
But he clashed with fellow monetary policy committee (MPC) member Silvana Tenreyro, who said the economy was struggling to grow and would stumble over the course of the next few months as consumers maintained physical distancing. Last week, official figures showed the economy grew by a lower-than-expected 1.8% in May.
Tenreyro said the threat of rising unemployment meant Britain’s economy was probably heading for an incomplete V-shaped recovery.
Speaking to members of the Treasury select committee, the London School of Economics academic said she was less confident than Haldane about the signals from experimental “fast” indicators that he cited as the basis for his optimistic view of the recovery so far.
“Spending is going to suffer because of the perceived health risks and this will feed into higher unemployment and lower incomes,” Tenreyro said, adding that the UK faced a downward spiral as lower incomes in turn caused lower levels of employment.
Tenreyro voted to increase the Bank of England’s stimulus programme at the last meeting of the MPC in June, while Haldane voted to preserve the current level of the Bank’s intervention.
Haldane also said the UK could face inflation pressures after the coronavirus crisis even if unemployment remained high, owing to a potential lack of qualified workers for jobs that remain in demand.
He said he saw both upside and downside risks to inflation over the medium term. “There has been some fracturing of domestic and global supply chains, raising the costs of some goods and services. And it is possible a higher long-term equilibrium rate of unemployment could cause the earlier re-emergence of wage pressures.”
But Tenreyro disputed his outlook, saying that while a no-deal Brexit may cause a temporary barrier to goods arriving from the EU, triggering a spike in prices, the trend was for consumers to be reticent about spending, forcing firms to cut prices.
“In June I judged that demand was falling behind supply and there needed to be a further stimulus from the Bank,” she said.