Bank forecasts show no v-shaped recovery in UK economy, warn economists

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12:30pm, Thu 06 Aug 2020
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The UK economy is not set for a v-shaped recovery following the pandemic after the Bank of England projected it would take longer-than-expected to bounce back, economists have warned.

On Thursday morning, the central bank said the immediate impact of the economy is likely to be shallower than it last projected, but the recovery was now expected to be more drawn out.

It said that UK GDP is unlikely to reach pre-crisis levels until the end of 2021, having previously forecast it would reach that level by the second quarter of that year.

Jeremy Thomson Cook, chief economist at Equals, said: “The recovery is not going to be v-shaped, the Bank of England is not expecting the economy to return to Q4 2019 size before the end of next year, and expects inflation will not reach its target over the two-year forecast period.”

Tom Stevenson, investment director for personal investing, Fidelity International, said: “The Bank of England seems a lot less convinced by the prospect of a V-shaped recovery for the UK economy than even just a few weeks ago.

“The decision to leave interest rates unchanged at 0.1% surprised no-one but the tone of the accompanying commentary was uncertain.

“No-one knows what recovery from coronavirus will look like and the Bank now accepts that its own predictions are less helpful than useful.”

At the bank’s latest Monetary Policy Committee meeting, members voted unanimously to hold rates at 1% and to maintain quantitative easing at £745 million.

Economists said that, although the bank is likely to deliver further asset purchases, it is unlikely to cut interest rates further this year.

Howard Archer, chief economic adviser to the EY Item Club, said: “It is possible that most MPC members will maintain concerns about the longer-term outlook for the UK economy.

“Consequently, the EY Item Club believes the Bank of England will ultimately decide that it has a further role to play in helping the economy build a sustainable recovery amid likely still challenging and uncertain conditions.

“We expect the Bank of England to announce a further dose of asset purchases either at its September or (more likely) November meetings, most likely around £100 billion.”

Meanwhile, Anneliese Dodds, Labour’s shadow chancellor, said: “Today’s assessment by the Bank of England shows that this is a critical moment for our economy.

“A short-term, post-lockdown rise in spending sits alongside a much more uncertain long-term picture of very low levels of business investment and the prospect of a sharp rise in unemployment.”

The FTSE 100 slipped in early trading as warnings of a longer-than-predicted recovery weighed heavily on trading sentiment.

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