LONDON: The Bank of England has warned that the UK economy is heading towards its deepest recession on record. The impact of coronavirus meant economy would shrink 14% this year, based on the lockdown being relaxed in June.
Scenarios drawn up by the Bank to illustrate the economic impact said Covid-19 was “dramatically reducing jobs and incomes in the UK”. Bank governor Andrew Bailey told the BBC there would be no quick return to normality. He described the downturn as “unprecedented”, and said consumers would remain cautious even when lockdown restrictions are lifted.
Mr Bailey said: “Not all of the economic activity comes back. There’s quite a sharp recovery. But we’ve also factored that people will be cautious of their own choice. They don’t re-engage fully, and so it’s really only until next summer that activity comes fully back.”
The Bank’s analysis, published on Thursday, was based on the assumption that social distancing measures are gradually phased out between June and September. Its latest Monetary Policy Report showed the UK economy plunging into its first recession in more than a decade.
The economy shrinks by 3% in the first quarter of 2020, followed by an unprecedented 25% decline in the three months to June. The Bank said the housing market had come to a standstill, while consumer spending had dropped by 30% in recent weeks.
The UK’s economy is on track for its sharpest downturn “in living memory”, according to a closely watched survey, as businesses suffer from the lockdown. The survey from IHS Markit/CIPS found the UK’s dominant services sector contracted at a record pace last month.
Around 79% of services, such as cafes and hairdressers, reported a fall in business activity amid mass shutdowns in response to the coronavirus. IHS Markit said UK GDP could fall at a quarterly rate of 7%. However, it also warned that the decline could be even greater.