The Bank of England has today issued a stark warning that the UK economy is facing the sharpest recession since records began, in further evidence of the financial damage caused by Covid-19.
An ‘illustrative scenario’ by the BoE foresaw possibly the biggest UK economic slump in over 300 years. The Bank’s Monetary Policy Report foresaw a 25% shrink in the three months to June, with the economy contracting 14% for the year overall. After the CBI predicted unemployment would hit 7% by Q3 2020, the Bank’s forecasts are even worse, with jobless figures predicted to hit 9% of the UK’s workforce.
The Bank also reported on the slump in consumer spending, which has seen UK VISA spending drop by more than 10%, and retail spending drop 80% on account of the closure of high street stores. While businesses hope that spending will resume as the lockdown ends, any prolonged social distancing measures will continue to impact retail spending, and the sharp rise in unemployment will only further hurt retail sales.
Elsewhere however, the Bank did little to change its response to the crisis. The Monetary Policy Committee voted unanimously to maintain interest rates at record lows of 0.1%, a decision that will hurt savers everywhere.
The BoE will also continue the £200 billion programme of bond buying and quantitative easing - though two members did recommend increasing this figure further. This will take the total stock debt to £645 billion by the beginning of July. The whole sum continues to be insured by central bank reserves.
In light of the global financial crisis, the committee made a depressing prediction for UK company sales. It is expected to fall by 45% from normal Q2 expectations. Business investment will also be 50% lower.
The report also expects consumer price inflation to fall further below the 2% target during the second half of this year. This is largely a reflection of the weakness of demand.
The committee further noted that, 'Activity has fallen sharply since the beginning of the year and unemployment has risen markedly.'
Governor Andrew Bailey said, “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.”
The speed with which Covid-19 has affected the world means that any forecasts by the Bank are subject to change and represent just one possibility. The Bank has already cautioned that their figures are based on the presumption government of the government lifting the lockdown and ending its furlough salary scheme by June. If any of these go on longer, further damaging the economy and increasing government spending, then the figure could be worse.
How long this latest recession will go on for is impossible to predict, but with the bank predicting 14% contraction for 2020, the record demand for safe haven metals looks set to last for months to come.