Coronavirus: Bank of England boss checks hopes of bounce-back after economic crash
Britain's top banker cautions over forecasts the economy will completely recover, highlighting the risk of "scarring effects".
Friday 17 April 2020 17:26, UK
The Bank of England governor says the British economy may be heading for its worst three months since comparable records began, with a 35% plunge in GDP "not implausible" in this quarter.
In a conference call with reporters, Andrew Bailey said high frequency data monitored by the Bank suggested the scenario published by the Office for Budget Responsibility (OBR) earlier this week, sketching out an unprecedented collapse in GDP in the second quarter, was "quite within the grounds of possibility".
He revealed that the Bank, which will produce its own forecast for the impact of COVID-19 early next month, had been using a tool it created to monitor high frequency data on the UK economy for a potential hard Brexit to keep tabs on the immediate impact of coronavirus and the lockdown.
Referring to the OBR's forecast for a 35% contraction, he said: "I don't think there's anything implausible about a second quarter contraction of that nature.
"If you look at the decline in spending coming through on credit cards: that's pretty high frequency and there's a big drop-off in activity.
"Housing market activity has dropped to basically nothing.
"We are seeing numbers for Universal Credit coming through and survey evidence for household spending, for employment on firms on no of staff furloughed.
"We have a whole range of data on the internet too - something we built in the process of preparing to monitor a hard Brexit.
"Look at all that stuff and it's showing a big drop in activity."
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The comments come amid growing concern about the impact on the UK economy from the lockdown measures to control the virus.
And while the OBR's scenario assumed the economy would bounce back completely from the initial economic crash, Mr Bailey said the Bank may not be quite as optimistic.
"That's one of the judgements the Monetary Policy Committee (MPC) will have to go through," he said.
"It's what the economists call hysteresis - if the level of unemployment and business failure will be such that there will be scarring effects. The MPC will set out its view very clearly on that in [its forthcoming forecasts]."
Mr Bailey, who until becoming governor of the Bank was in charge of the Financial Conduct Authority, also acknowledged that there had been problems with the Coronavirus Business Interruption Loan Scheme - the scheme set up by the Treasury which involves guaranteed loans to small businesses.
So far just over a billion pounds has been lent through the scheme, compared with seven times that in Germany and many hundreds of times that in the United States.
Mr Bailey said the scheme had taken longer to get into full operation than expected.
"Banks, notwithstanding the stress they are working under now, have to put their backs into it and get on with it," he said.
"I agree it does have to be tackled because otherwise we are going to destroy people's livelihoods or get scarring of the economy."