Today, the Bank of England has warned that the current pandemic, brought on by Covid-19, will bring about the biggest recession on record. It speculated the economy as a whole will shrink by 14% in 2020 (if lockdown measures are relaxed sometime in June).
Research by the Bank of England shows the economic impact by Covid-19 had been “dramatically reducing jobs and incomes in the UK” during the period.
The policymakers voted to keep interest rates at their record low of 0.1%. There was some disparity between the Monetary Policy Committee (MPC) on whether to increase stimulus into the economy. A total of 22% of the committee voted to increase the latest round of quantitative easing to £300bn.
The Bank of England’s analysis was based on the lockdown measures being phased out gradually from June onwards. Its latest Monetary Policy Report illustrated that the UK economy would enter its first real recession in more than a decade. It shows the economy shrinking by more than 3% in the first 3 months of 2020, with a much sharper decrease in the months from June.
This would cause a recession in the UK due to two consecutive quarters of economic decline.
The Bank commented on the housing market, saying it had effectively come to a standstill. In addition, all consumer spending had dropped by 30% this month.
For the whole year of 2020, the economy is expected to shrink by over 14%. This would be the largest decline on record, according to the Office of National Statistics (ONS).
The economy isn’t expected to return to pre-pandemic conditions until at least the middle of 2021. Governor of the Bank of England, Andrew Bailey, expects any ‘permanent economic damage’ caused by the virus to be relatively minimal. He said the economy was “likely to recover much more rapidly than the pull back from the global financial crisis”.