By Laurie Laird
LONDON (MaceNews) – Bank of England Governor Andrew Bailey Wednesday downplayed a sharp downturn in UK economic output, standing by the central bank’s forecast of a robust recovery toward the latter part of 2020.
Bailey told ITV’s Robert Peston programme that he was “not surprised” by the 2.0% quarterly contraction in first quarter economic output reported earlier on Wednesday, the sharpest fall since the fourth quarter of 2008. Bank of England staff had forecast a 3.0% decline, according to the Bank’s Monetary Policy Report released last week. Members of the Bank’s Monetary Policy are confident of a “sharper recovery” in the second half of the year, although he did not specify a comparison point for the term “sharper.”
The UK suffered a less-severe slump than the eurozone, which contracted by 3.8% in the opening months of the year, although much of Europe implemented lockdowns ahead of the UK quarantine announced on March 23rd.
The governor did hedge his bets, suggesting that post-Covid “scarring” could cost “a bit” more than 1% of GDP over the longer term, particularly if “consumer tastes” change in the aftermath of the economic lockdown. Even when stay-at-home measures are completely relaxed, “people will be cautious” about resuming activity. A second wave of the virus could have even longer-lasting economic effects, he added.
Bailey expressed full support for fiscal measures announced by the government, particularly the recent extension of a government-backed payment plan for furloughed workers, currently providing support for nearly 25% of employees. The governor also downplayed the vast expansion of state borrowing required to fund rescue schemes, as long-term interest rates were forecast to remain at historically low levels even before the shock of coronavirus hit the global economy, he said.