The UK economy is heading for its worst crash in more than 300 years because of the coronavirus pandemic, according to a new forecast from the Bank of England.
A Bank of England scenario sees UK GDP falling 14% this year, its worst annual slump for more than 300 years, and the jobless rate hitting 8% as the coronavirus crisis ravages the economy.The Bank released its first work on the potential impact of the lockdown measures to limit the spread of COVID-19 as its monetary policy committee left interest rates unchanged at their record low level of 0.1%.
The central bank slashed interest rates to a record low in March and has launched a £200 billion ($248 billion) bond buying program that is designed to counter the economic shock caused by weeks of lockdown measures and lost production.
More action is likely to be taken in the coming months. Two members of the monetary policy committee voted to pump another £100 billion ($124 billion) into the stimulus program, and outside economists expect other members to agree oncethe situation becomes clearer.
The central bank expects a swift economic recovery next year, but it warned that much depends on how the pandemic evolves. If the coronavirus continues to spread, and the government is forced to extend or reintroduce lockdowns, much more than £100 billion could be needed.
The Bank’s projection included a 3% hit between January and March before a 25% decline in GDP in the second quarter. Company sales are seen 45% down between April and June with a 50% collapse in business investment.
But the scenario saw a rapid recovery from the slump ahead – as the cogs of the economy gradually picked up pace – with GDP surging by 15% next year.
It said: “The spread of COVID-19 and the measures to contain it are having a significant impact on the United Kingdom and many countries around the world.”Activity has fallen sharply since the beginning of the year and unemployment has risen markedly. “It added: “UK households entered this period of economic disruption in a stronger position than they were before the 2008 financial crisis.