Economy could plunge 14% this year because of coronavirus

THE Bank of England has warned coronavirus could see the economy plunge 14% this year in the worst annual fall since records began.

In its first official outlook on the economic toll taken by the Covid-19 pandemic, the Bank cautioned over a fall in GDP of close to 30% over the first half and for the unemployment rate to peak at 9%.

It said the fall should be temporary and that activity is expected “pick up relatively rapidly” as lockdown is eased.

The Bank said it would take more than a year for the economy to recover from when the lockdown is lifted. And even then, growth would not quite be back at the level seen since before the pandemic struck.

The grim scenario-based forecast came as the Bank held interest rates at the historic low of 0.1% after recent emergency action.

It kept its quantitative easing (QE) programme to boost the economy unchanged at £645bn after unleashing another £200bn of bond-buying in March.

Bank governor Andrew Bailey, who took on the role in March, said: “We expect the recovery of the economy to happen over time, although much more rapidly than the pullback from the global financial crisis.

“Nonetheless, we expect that the effects on demand in the economy will go on for around a year after the lockdown starts to lift.

“We expect that there will be some longer-term damage to the capacity of the economy, but in the scenario we judge these effects to be relatively small.”

He added the Bank stood ready to support the economy further.

“There’s a commitment and a determination to take action should we need to,” he said.

Meanwhile, the director of the Institute of Fiscal Studies suggested Rishi Sunak should look at offering different furlough rates to workers in sectors of the economy which can begin reopening as part of the coronavirus recovery plan.

Paul Johnson acknowledged there was an “incredibly difficult and fine judgment” to be made as some sectors of the economy were unlikely to ever fully recover.

The think tank suggested “many jobs will not be available again immediately, or perhaps ever” and so staff in areas including high street retail may need to be given support to retrain for new roles in the future.

At least 6.3 million people are having up to 80% of their salaries paid by the taxpayer under the furlough sys