On Thursday, The Bank of England predicted that the economic downturn in the U.K. economy amid COVID-19 might be less severe than it thought at the start of the pandemic but it would take a longer time to heal the scars.
The central bank said the economy may not return to pre-pandemic levels until the end of 2021 as spending by consumers and businesses remains weak for longer than expected. The bank already opened the door to providing more monetary stimulus as Britain reopens after the pandemic lockdowns.
It also expressed its concern about rising rates of unemployment, particularly at a time in which no one knows what will happen next.
The Bank of England (BoE) said in its statement that;
“The outlook for the U.K. and global economies remains unusually uncertain. It will depend critically on the evolution of the pandemic, measures taken to protect public health, and how governments, households, and businesses respond to these.″
In the meantime, the central bank’s Monetary Policy Committee kept its benchmark interest rate at a record low of 0.1%. It also kept its target for buying government and corporate bonds – by which it injects money into the economy – at 745 billion pounds ($980 billion).
The decisions on rates and economic stimulus were widely expected as the uncertainty over the pandemic could require more action later, economists say.
"There will be some parts of the economy that won't be viable going forwards."
Andrew Bailey, Governor of the Bank of England, says it is "reasonable" to think there will be "structural change" in the economy after the #coronavirus.
— SkyNews (@SkyNews) August 6, 2020
Notably, the U.K.’s GDP probably shrank by 23% in the second quarter, although recovery is already underway, according to the central bank. It’s forecasts also includes that the economy will likely contract 9.5% for 2020 as a whole, before expanding 9% in 2021 and 3.5% in 2022.
The minutes of the committee’s meeting showed that policymakers were particularly concerned that the rise in unemployment during the pandemic could prove to be more persistent than expected. The bank forecast that the unemployment rate would rise to 7.5% this year, from 3.75% in 2019.