Bank of England: UK economy could shrink by nearly a third

LONDON (AP) — The Bank of England has warned that the British economy could be nearly a third smaller by the end of the first half of this year than it was at the start of it as a result of the coronavirus pandemic.

In forecasts published yesterday, the bank said the British economy would shrink by around 25 per cent in the second quarter of the year, but would then start to recover as lockdown restrictions start to be lifted. The gloomy scenario outlined, which is similar to the slumps being predicted elsewhere, came as the bank’s Monetary Policy Committee decided to keep its main interest rate unchanged at the record low of 0.1 per cent and opted against a further expansion of its bond-buying programme. Two of the nine policymakers wanted to increase the bank’s stimulus programme by another GBP100 billion (USD124 billion). The bank’s policymaking panel has previously announced big cuts in interest rates, an expansion in its stimulus programme and a sizeable lending programme as it tries to contain the economic damage of the pandemic and the associated restrictions put in place by the government.

In a statement accompanying its policy decisions, the bank said United Kingdom (UK) GDP is set for a “very sharp fall” in the first half of the year and a there will be a “substantial increase” in unemployment beyond those workers who have been retained by their companies as part of the government’s Job Retention Scheme.

Overall, it said that the British economy could shrink by 14 per cent this year, but that clearly depends on how long the current lockdown restrictions remain in place.

Its assumptions are based on the phasing out of both the furlough scheme and social distancing guidelines between June and the end of the year. There is also no factoring in of a second wave of infections.

Pedestrians pass the Bank of England in London. PHOTO: AP