Bank of England policy makers painted a downbeat picture of the UK’s economic outlook, warning that the nation faces a long road back from the hit of the pandemic.
Governor Andrew Bailey told the Parliament's Treasury Committee that the risks to growth remain to the downside, while one of his deputies, Dave Ramsden, said the economy might have lost more than 1.5 per cent of growth permanently.
Fellow Monetary Policy Committee member Gertjan Vlieghe said in written testimony that a full recovery, and a return to the BOE's inflation goal of 2 per cent, could be a long time coming.
“There is a material risk in my view that it could take several years for the economy to return to full capacity and inflation to return sustainably to target, even with monetary policy at its current settings,” Mr Vlieghe wrote. “The longer the virus remains prevalent enough to affect patterns of consumption, investment and employment, the higher the likelihood that some sectors will not be able to return to their previous level of activity.”
The UK has been rocked by the coronavirus pandemic, with a 20 per cent contraction in the second quarter that was the biggest among major developed nations. The BOE has unleashed a raft of stimulus measures, including slashing the benchmark rate to a record-low 0.1 per cent and raising its asset-purchase target to £745 billion.
Policy makers delivered a slightly less pessimistic assessment last month, saying that the hit was shallower than initially thought, and the consumer-driven rebound faster.
Still, the country faces the prospect of a renewed wave of infections, and a surge in unemployment when furloughs end. Bailey said the uncertainty in the BOE’s forecast was the largest ever. – Bloomberg
