Bank of England expects worst slump since records began

THE BANK of England has warned coronavirus could see the economy plunge 14 per cent 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 per cent over the first half and for the unemployment rate to peak at nine per cent.

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

But Bank governor Andrew Bailey braced the UK for some lasting economic scars from the crisis.

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 forecast came as the Bank held interest rates at the historic low of 0.1 per cent after recent emergency action. It kept its quantitative easing (QE) programme to boost the economy unchanged at £645bn after unleashing another £200 billion of bond-buying in March.

Mr Bailey, who only took on the job in March, said: “We expect the recovery of the economy to happen over time, although much more rapidly than the pull-back 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.

The Bank’s Monetary Policy Report showed gross domestic product (GDP) is likely to fall by around 3 per cent in the first three months of 2020 and then plunge by a further 25 per cent in the second quarter, though it said there was uncertainty over the forecasts.

Britain’s unemployment rate could hit nine per cent in the second quarter as the lockdown hammers firms across the economy, but it said Government schemes will help soften the blow, with six million people expected to be furloughed.

While the Bank is expecting annual GDP to soar back up to 15 per cent in 2021, it warned the bounce-back will be held back as Britons continue some voluntary social distancing measures even after lockdown restrictions are eased.