THE UK faces its biggest recession since England signed its Act of Union with Scotland, the Bank of England has warned.
In a startling set of forecasts published yesterday, the bank said GDP could shrink by around 25% in the second quarter of the year. They also warned there could be a “substantial increase” in unemployment.
This could mean the economy shrinking by around 14% as a whole this year, the biggest annual decline on record, according to Office for National Statistics data dating back
to 1949. It would also be the sharpest annual contraction since 1706, according to Bank of England data stretching back to the 18th century.
However, the bank also suggested the economy would recover sharply and could be back where it was before the coronavirus outbreak began by the middle of next year.
Its assumptions were based on there being no second wave of the virus, and on lockdown between gradually phased out between June and September.
The grim outlook came as the bank’s monetary policy committee decided to keep interest rates at a record-low 0.1%.
Spending on flights, hotels, restaurants and entertainment had dropped to one-fifth of previous levels, while shopping at high-street retailers had dropped by 80%.
The housing market has all but come to a standstill.
Andrew Bailey, who took over as the Bank’s governor in March, said: “The scale of the shock and the measures necessary to protect public health mean a significant loss of economic output has been inevitable in the near term.”
James Smith, research director at the Resolution Foundation, said: “The Bank’s scenario points to a fairly rapid recovery. But even if this were to materialise – and it is certainly not guaranteed – Britain is likely to be living with a legacy of high unemployment for some years to come.”
The monetary policy committee was split on whether to inject more stimulus into the economy, with two of its nine members voting to increase the latest round of quantitative easing by £100 billion
to £300bn.
Bailey said he expected any permanent damage from the pandemic to be “relatively small”.
Responding to the findings, the SNP’s shadow chancellor, Alison Thewliss, called on Treasury to go further in its financial support.
She said: “The dire economic scenario set out by the Bank of England –warning that the crisis is pushing the UK towards its deepest recession on record, rising unemployment, and the biggest economic slump in 300 years – must lead to the Treasury going further in its financial support for businesses and people so that no-one is left behind or pushed towards the brink.”
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