The Bank of England has warned that the UK economy is heading towards its sharpest recession on record.
“This is going to be a major recession we have to plan for it. There is going to be lots of uncertainty moving forward. It will be a while before it gets back to normal.”Nigel Holland.
News from the BBC
The coronavirus impact would see the economy shrink 14% this year, based on the lockdown being relaxed in June.
Scenarios drawn up by the Bank to illustrate the economic impact said Covid-19 was “dramatically reducing jobs and incomes in the UK”.
Bank governor Andrew Bailey told the BBC there would be no quick return to normality.
He described the downturn as “unprecedented”, and said consumers would remain cautious even when lockdown restrictions are lifted.
Mr Bailey said: “Not all of the economic activity comes back. There’s quite a sharp recovery. But we’ve also factored that people will be cautious of their own choice.
“They don’t re-engage fully, and so it’s really only until next summer that activity comes fully back.”
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Also on Thursday, policymakers voted unanimously to keep interest rates at a record low of 0.1%. However, the Monetary Policy Committee (MPC) that sets interest rates was split on whether to inject more stimulus into the economy.
Two of its nine members voted to increase the latest round of quantitative easing by £100bn to £300bn.
The Bank’s analysis, published on Thursday, was based on the assumption that social distancing measures are gradually phased out between June and September.
Its latest Monetary Policy Report showed the UK economy plunging into its first recession in more than a decade. The economy shrinks by 3% in the first quarter of 2020, followed by an unprecedented 25% decline in the three months to June.
This would push the UK into a technical recession, defined as two consecutive quarters of economic decline.
The Bank said the housing market had come to a standstill, while consumer spending had dropped by 30% in recent weeks.