— Sees OBR forecast of 35% decline in output in Q2 as “not unreasonable”
— Decision on expanded QE expected early next month
By Laurie Laird
LONDON (MaceNews) – A Bank of England deputy governor Monday endorsed a grim forecast of a massive economic contraction in the second quarter, but warned that a rapid recovery may not occur later in the year, breaking with the consensus of private analysis.
Last week, the U.K. Office for Budget Responsibility predicted a 35% plunge in output in the three months to June, a prediction that is “not unreasonable,” according to Ben Broadbent, deputy governor for monetary policy, echoing comments of new BoE Governor, Andrew Bailey last week.
However, Broadbent queried the OBR’s assumption that the economy will recover quickly in the latter part of 2020, telling a web address to small business leaders that “consumer behavior could change” even after the UK government lifts its economic restrictions, which could depress demand in the the third quarter and beyond. That suggests that the top BoE official may regard the OBR’s forecast of a 13% contraction in 2020 as overly optimistic.
The UK media is rife with speculation of a split in the UK cabinet over the timing of re-opening the economy, with the top finance official, Rishi Sunak, pushing for a rapid easing of restrictions, while Health Secretary Matt Hancock favors a more cautious approach, according to widespread reports. Prime Minister Boris Johnson has been absent from seat of government while recuperating from his own brush with coronavirus outside of London.
Broadbent, who presided over the the briefing along with Bank of England Chief Economist Andy Haldane, offered no opinion as to when the government should lift restrictions, but stressed that monetary policy can do little to counter job losses and business failures caused by government policy with regard to coronavirus. He did stress that the government must “positively encourage” people back to work “when it is safe to do so.”
However, neither he nor Haldane ruled out an expansion of quantitative easing, with a decision unlikely to come before the publication of the Bank’s Monetary Policy Review on May 7th. He did downplay accusations that the Bank is engaging in monetary financing of government spending, stressing that the Monetary Policy Committee is mindful of its commitment to price stability and has noted a reduction in market inflation expectations. “We are conducting QE within our remit. What matters is not the nature of who does what, but why.”
Broadbent also briefly responded to questions of whether the Bank may consider purchasing sub-investment grade securities as part of an expanded bond-buying programme, saying that “it’s important that we develop a capacity to assess that.”