UK economy set for ‘incomplete V-shaped’ recovery from coronavirus crisis with a bounce back stalling at the end of 2020 because of rising unemployment, predicts Bank of England policymaker
- Bank of England expert Silvana Tenreyro said UK recovery could be ‘incomplete’
- Rising unemployment at end of 2020 could cause economy bounce back to stall
- Continued social distancing and fear of coronavirus could also hit recovery
The UK economy is set for an ‘incomplete V-shaped’ recovery from the coronavirus crisis with a bounce back likely to stall at the end of 2020 because of rising unemployment, according to a Bank of England policymaker.
Bank interest rate-setter Silvana Tenreyro said an anticipated increase in the number of people without work, likely caused by the removal of Government support in the coming months, will slow consumer spending.
Meanwhile, continued social distancing in key parts of the economy like the hospitality sector and lingering coronavirus fears which may stop some shoppers from returning to the high street could also hinder growth.
Ms Tenreyro predicted an ‘interrupted’ or ‘incomplete’ V-shaped recovery as an initial rebound in activity loses steam towards the end of the year.
Bank of England policymaker Silvana Tenreyro today warned the UK economy is facing an ‘incomplete V-shaped’ recovery from the coronavirus crisis
She said the first quarterly growth rebound will come between July and September as lockdown restrictions ease further, with data already pointing to a sharp pick-up in purchases due to lockdown rules being eased.
But she warned: ‘This will be interrupted by continued risk aversion and voluntary social distancing in some sectors, remaining restrictions on activities in others, and in general by higher unemployment.’
She said the recovery is expected to flatten out markedly at the end of the year as rising joblessness leads to falling consumer spending, while many people may still opt to socially distance despite easing restrictions.
She said: ‘I expect voluntary social distancing to continue to drag on consumption in sectors where the perceived risk of spreading Covid-19 remains high, such as hospitality and travel.
‘Recent survey data suggests a majority of people would still be uncomfortable going to indoor restaurants or cinemas, for example.’
The Government is hoping for a V-shaped economic recovery – a swift plunge caused by the crisis immediately followed by an equally swift recovery.
An ‘incomplete’ V-shaped recovery would mean a quick recovery to begin with before growth then slows down.
Ms Tenreyro’s comments follow official data on Tuesday showing that gross domestic product (GDP) grew by a meagre 1.8 per cent in May, leading to warnings of a slower and more protracted recovery.
Economists are now forecasting a fall of up to 20 per cent in GDP between April and June, though activity is set to rebound more strongly in the third quarter.
Ms Tenreyro signalled that she is ready to push for more economy-boosting action, having voted with the majority of the Monetary Policy Committee for another £100 billion of quantitative easing (QE) in June.
But she warned that the impact of the Bank’s £745 billion QE bond-buying programme may start to wane, given mounting expectations for negative interest rates.
Fellow rate-setter Andy Haldane, the Bank’s chief economist, recently described the shape of the recovery as ‘so far, so V’, but warned over the risk of mass unemployment.
The UK’s fiscal watchdog said on Tuesday that Britain’s economy may not fully recover until 2024 and is facing an unemployment rate surging potentially as high as 13 per cent from just under four per cent now.
The Office for Budget Responsibility said the economy could shrink by as much as 14.3 per cent in 2020 in a worst-case scenario and would still plunge by 10.6 per cent in even its most optimistic projection.