The Bank of England has warned the government that the UK could see the deepest recession on record due to the Coronavirus pandemic.
Recent scenarios have been drawn up by the Bank of England to show what the state of play could look like in the aftermath of the pandemic. Its figures estimate that the economy will shrink 14% this year, based on lockdown being relaxed in June.
This news comes alongside that policymakers also decided unanimously to keep interests at their lowest on record at 0.1%. Although the Monetary Policy Committee (MPC) was split on the decision on whether the country needed an injection to stimulate the economy. The figures are also estimated based on social distancing measures to be phased out by September.
It has been reported, the decline in the economy will spark another recession, which will be the deepest downturn since 1706. However, it is also estimated that the economy is expected to grow to 15% in 2021 but will not get back to its pre-virus peak until the middle of next year.
Andrew Bailey, Governor of the Bank of England, said he expected any permanent damage from the pandemic to be “relatively small”. The economy was likely to recover “much more rapidly than the pull back from the global financial crisis.”
Families hit hard
UK residents are being warned that they could be hit hard this year. A report by CEBR thinktank and polling company Opinium cautioned that more than a quarter of a million firms might not survive if the lockdown lasts for another month.
Pablo Shah, a senior economist at CEBR, said that the findings provide the first glimpse of the deep and long-term scars that the coronavirus crisis is set to inflict upon the UK economy’.
Unemployment and more significantly, youth unemployment could dramatically rise too. Dubbed as ‘the corona class of 2020’, people leaving education this year may experience reduced prospects and pay as a result.
Families may also see a hit to closer to home too. James Smith, research director at the Resolution Foundation, said the blow to the economy this year was equivalent to £9,000 for every family in Britain.
He said: “Faced with this huge economic hit, both the Bank and the Government have made the right call in taking bold action to protect firms and families as much as possible.”
A disastrous second wave
One of the main objectives of social distancing and lockdowns rules was to slow the spread of the virus. Plus, it also reduces the risk of a second wave, which could have significant repercussions on the economy. CEBR highlighted that a second wave could be fatal for the business community, who are already struggling to stay afloat.
For example, firms such as those in the motor industry have seen their worst results on record. According to The Society of Motor Manufacturers and Traders, sales were down 97% in April (year on year).
SMMT chief executive Mike Hawes said: ‘The market’s worst performance in living memory is hardly surprising.
‘These figures, however, still make for exceptionally grim reading, not least for the hundreds of thousands of people whose livelihoods depend on the sector.’