City leaders predict virus will plunge UK into recession
HEDGE fund bosses, City economists and former central bankers have all warned that the coronavirus will cast the UK into recession.
It came at the end of a disastrous week for stock markets. Despite yesterday’s bounce, the FTSE 100 lost £275bn across five days, the worst week since the financial crisis.
Britain’s decision not to lock down social and economic activity rapidly means it is more exposed to the virus and could suffer a bigger hit, according to Odey Asset Management, a company run by prominent Conservative donor Crispin Odey.
“The evidence from Chinese infection rates, market signals and recovering rates of economic activity is that the lockdown strategy is the correct approach to this crisis,” the firm said in a note.
“This evidence flatly contradicts the non-interventionist approach of countries such as the UK.”
Capital Economics predicts a fall in UK GDP of around 2.5pc in the second quarter, forcing the Bank of England to cut interest rates to new lows of 0.1pc and to ramp up quantitative easing.
Its chief economist Paul Dales does not expect two consecutive quarterly falls in GDP, but added: “As it will look like a recession and will feel like a recession, it will be a recession. It would be bigger than the 2pc drop during the 1990-91 recession.”
Deutsche Bank economists said they expect a recession as the economy was already struggling to grow into the start of 2020.
Paul Fisher, a former monetary policymaker at the Bank of England, also warned of the risks: “It is most likely a short, sharp shock but it could help trigger a recession, coming as it does on top of Brexit plus weakish global trade on account of Trump.”
Vicky Pryce, former head of the Government Economic Service, agrees that a recession is on the way.
“The UK economy depends so much on exporting and tourism and so on. As all that is blocked because of what is happening elsewhere, that will be an issue,” she said. “The recovery will very much depend on what happens internationally.”