Bank of England economist warns: Covid crash will make inequality worse
The Bank of England Governor warned that the UK economy is going through a rough time due to the latest lockdown, which is likely to delay its recovery.
His comments on Tuesday echoed the Chancellor’s warnings Rishi Sunaka, made the day before that the economy «get worse before she gets better». Andrew Bailey said the UK will recover, but only after the isolation ends and the spread of the virus stops.
Referring to the phrase Winston Churchill, spoken by him in 1940 after the evacuation in Dunkirk, he said: «There is an old saying that the darkest hour is before dawn.».
He added: «[We are] currently going through a very difficult period, and there is no doubt that this will possibly delay the trajectory».
In his online address to the Scottish Chamber of Commerce, the head of the regulator said that the recovery, although delayed, will broadly be in line with the forecast made by the Monetary Policy Committee (MPC) of the Bank of England last November..
Bailey said the unemployment rate, which he previously expected to peak around 7-8% in the summer, will now be lower after the government expanded its job protection scheme and took other measures to protect household incomes..
However, according to official data, this figure may rise above 4.9%..
There are concerns that the UK will experience a double recession after the expected drop in GDP in the last quarter of 2020. This despite additional measures announced by Sunak, including an additional £ 4.5bn to vaccinate hospitality workers..
«We estimate that across the country this figure is likely to be around 6.5%.», – said Bailey.
The MPC meets early next month to discuss how the central bank can help protect the economy during a lockdown. It is necessary, among other things, to understand whether the interest rate should be reduced to a level below zero. This step can shorten borrowing costs for households and businesses.
Bailey said he was skeptical that a decline from the current all-time low of 0.1% would be painless, arguing that it could make things worse..
He said there is «Many problems» with a decrease in interest rates before entering negative territory, and such a step could harm banks.
«In simple terms of economics and mathematics, there is nothing that could prevent it, ”he said. – However, there are many problems with this».
At its meeting in November, a nine-member committee voted to launch a new £ 150bn stimulus package in response to a slowing economic recovery, bringing the total e-money pumped into the economy to £ 895bn.
In December, the committee said it would wait for further evidence of a downturn and consider the economic impact of the Brexit trade deal before allocating additional funds for the stimulus package..
Bailey said the Bank of England has seen anecdotal evidence of disruptions caused by the UK’s exit from the European Union at the end of the year, but it is unclear how persistent growth delays will be after the first month of this year..
On Monday, one of nine MPC committee members said she believed the likelihood of further downturn after the third lockdown means negative rates will benefit the UK economy and help it recover faster..