LONDON: The Bank of England (BoE) said Britain could be headed for its biggest economic slump in over 300 years due to the coronavirus lockdown and kept the door open on Thursday for further stimulus.
In what it called an ‘illustrative scenario’ rather than a standard forecast, the BoE said Britain’s economy was on course to shrink by 25% in the three months to June and for unemployment to jump to more than 9% of the workforce.
Over 2020 as a whole, output was at risk of shrinking by 14% - an annual decline last seen in the early 1700s when Britain was beset by natural disaster and war - despite what the BoE described as “very significant monetary and fiscal stimulus”.
The central bank’s scenario did, however, foresee the economy bouncing back sharply in 2021 with growth of 15% as lockdown restrictions were loosened.
The BoE kept its benchmark interest rate at an all-time low of 0.1% and left its target for bond-buying, most of it British government debt, at £645 billion ($797 billion), as the stimulus measures taken in March continued to play out.
But in a sign more might be on the way, two of its nine policymakers - Michael Saunders and Jonathan Haskel - voted to increase the central bank’s bond-buying firepower by £100 billion, and Governor Andrew Bailey said the BoE could act again.
“However the economic outlook evolves, the Bank will act as necessary to deliver the monetary and financial stability that are essential for long-term prosperity and meet the needs of the people of this country,” Governor Andrew Bailey said.
“This is our total and unwavering commitment.”
He said the BoE expected “the recovery of the economy to happen over time, though much more rapidly than the pull-back from the global financial crisis.” The illustrative scenario was based on the government gradually lifting its coronavirus lockdown that has shuttered swathes of the economy, between June and September.
Published in The Express Tribune, May 8th, 2020.
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