LONDON- Britain’s economy will not fully recover from its current historic downturn for at least two years, a Reuters poll of economists found, but there is only a slim chance the Bank of England will use negative interest rates to boost the upswing.
Britain has suffered the highest death toll from the novel coronavirus in Europe, leading to criticism of the government’s response to the pandemic.
Last quarter, when a lockdown to quell the spread of the virus was at its tightest, the economy shrank a record 20.4 percent. But as many restrictions have been lifted, it was expected to expand 15.1 percent this quarter, the Aug. 14-19 poll showed.
“The severity of the slump was chiefly a by-product of the very long lockdown in the UK, necessitated by the government’s laissez-faire attitude in the early days of the pandemic, which meant the virus spread more widely than in other countries,” said Samuel Tombs at Pantheon Macroeconomics.
Earlier this month the BoE said the economy would not recover to its pre-pandemic size until the end of 2021, but 20 of 23 economists who responded to an extra question said it would be at least two years before that happened. Only three said within two years.
After contracting 9.7 percent this year – more than most of its peers and more than the 9.1 percent forecast last month – the economy will expand 6.2 percent in 2021, the poll of nearly 70 economists predicted. In a worst case scenario, it will contract 14.2 percent this year.
“Unlike BoE chief economist Andy Haldane, who thinks it is now time to see the economic glass as ‘half-full’, recent data outturns have made us more pessimistic about the lasting economic impact,” said Elizabeth Martins at HSBC.
To support the economy the government has ramped up spending to record amounts, the centerpiece of which was to pay 80 percent of wage bills if staff were put on leave rather than let go.
But that scheme is due to finish at the end of October, and all respondents to an extra question said the risk that the job market will worsen significantly before this year draws to a close was high or very high. – Reuters