In its Monetary Policy Report for the month of May, the Bank of England discussed scenarios for the UK economy, predicated on lockdown protocols being eased from June to September.
These scenarios suggested that, though the economy contracted 2.9% in the first quarter of 2020, it could fall by an astonishing 25% in the second quarter, ultimately shrinking by 14% over the course of the year. If it turns out that way, this would mark the economy’s sharpest contraction since 1706, according to figures released by BoE.
The report further predicts that unemployment in the country could rise by up to 9% – greater than the 8% unemployment rate that was experienced during the last financial crisis.
Also on Thursday, BoE’s Monetary Policy Committee reached a unanimous decision to keep interest rates at their record low of 0.1%, while a 7-2 majority voted against increasing the latest round of qualitative easing to £300 billion up from £200 billion.
Commenting on the report, Adrian Lowcock, head of personal finance at investment platform Willis Owen, said: “The Bank’s latest forecasts are the stuff of nightmares”.
“The only good news today is that the Bank expects this economic bombshell to be short-lived, and for the economy to bounce back rapidly. However, the MPC itself concedes it is flying blind to a large extent, warning that a pandemic like this is “especially difficult to quantify.””
Bank of England governor Andrew Bailey expressed optimism when speaking with the BBC, arguing that the economy is likely to recover “much more rapidly than the pull back from the global financial crisis”.
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