Rate-set­ter: Re­cov­ery will be ‘in­com­plete V’

BoE pol­i­cy­maker says that cau­tious con­sumers and un­em­ploy­ment could hold back the com­ing up­swing

The Daily Telegraph - Business - - Business - By Rus­sell Lynch

BANK of Eng­land pol­i­cy­maker Sil­vana Ten­reyro has said the UK’s Covid-19 re­cov­ery is likely to be an “in­com­plete V” as peo­ple and com­pa­nies spend cau­tiously through the pan­demic. Ms Ten­reyro ex­pects a first big step-up in growth be­tween July and Septem­ber as shop­pers shift their be­hav­iour and un­em­ploy­ment climbs.

Her com­ments came af­ter May’s GDP fig­ures dis­ap­pointed with growth of just 1.8pc over the month as lock­down re­stric­tions grad­u­ally lifted.

The rate-set­ter’s as­sess­ment is far less bullish than that of her col­league Andy Hal­dane, the Bank’s chief econ­o­mist, who claimed “so far, so V” on the shape of the re­cov­ery. She said: “Be­havioural re­sponses mean that the UK eco­nomic out­look will con­tinue to de­pend on the global and do­mes­tic spread of Covid-19. As­sum­ing preva­lence grad­u­ally falls, my cen­tral case fore­cast is for GDP to fol­low an in­ter­rupted or in­com­plete ‘V-shaped’ tra­jec­tory, with the first quar­terly step-up in the third quar­ter.”

Ms Ten­reyro sug­gested coro­n­avirus would push down on in­fla­tion for some time, de­spite the Of­fice for Na­tional Sta­tis­tics’ fig­ures show­ing a sur­prise uptick in in­fla­tion last month to 0.6pc – al­beit still far be­low the Bank’s 2pc tar­get. The Mon­e­tary Pol­icy Com­mit­tee voted to pump an ex­tra £100bn into the UK econ­omy in June, push­ing the to­tal size of its quan­ti­ta­tive eas­ing pro­gramme to £735bn.

De­spite the £160bn sup­port of the Chan­cel­lor’s fis­cal pack­age, the econ­o­mist said “we are likely to see dis­in­fla­tion­ary pres­sures” due to be­havioural shifts, fears of a sec­ond wave and plum­met­ing busi­ness in­vest­ment. The tem­po­rary VAT cut that started this week for hos­pi­tal­ity firms would add to the down­ward pres­sure, she added. The ONS has been ham­pered by Covid-19 in its ef­forts to col­lect prices but June’s brief uptick in the con­sumer prices in­dex caught economists off guard.

In­fla­tion is still close to four-year lows but was pushed higher by a sur­prise jump in com­puter games prices com­pared to last year, thanks to the re­lease of top-sell­ing PlayS­ta­tion 4 game

The Last of Us Part II and lock­down spend­ing on con­soles and games.

Cloth­ing and footwear prices also fell by far less than an­tic­i­pated in June as shops re­opened. HSBC’s UK econ­o­mist Chris Hare said the rise in in­fla­tion was likely to be tem­po­rary as the “Covid-19 shock is a dis­in­fla­tion­ary, rather than in­fla­tion­ary, one”.

The ONS also con­firmed that the Chan­cel­lor’s Eat Out to Help Out scheme of­fer­ing half price dis­counts of up to £10 would be in­cluded in Au­gust in­fla­tion fig­ures, ap­ply­ing to restau­rant meals, which make up around 3pc of the in­fla­tion bas­ket.

This, along with the tem­po­rary VAT cut, could push the CPI to an all-time low in Au­gust, economists have said.

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