The UK economy is recovering faster than expected and is predicted to make a ‘v-shaped’ turn-around, according to the Bank of England’s chief economist.
Andy Haldane said the recovery in the UK and globally had come ‘sooner and faster’, and the UK’s economy was benefiting from a rebound in consumer spending since lockdown restrictions began to ease.
He said: ‘It is early days, but my reading of the evidence is so far, so V.’
He added: ‘The recovery in both the UK and global economies has come somewhat sooner, and has been materially faster, than in the monetary policy committee’s May Monetary Policy Report scenario – indeed, sooner and faster than any other mainstream macroeconomic forecaster.’
But Haldane – who also sits on the Bank’s committee that set interest rates – warned that there was a risk of a ‘vicious cycle’ in the economy if unemployment proves to be higher than expected, especially among young people.
He said: ‘Risks to the economy remain considerable and two-sided.
‘Although these risks are in my view slightly more evenly balanced than in May, they remain skewed to the downside.
‘Of these risks, the most important to avoid is a repeat of the high and long-duration unemployment rates of the 1980s, especially among young people.’
His comments come after the Bank recently said it now expects gross domestic product to tumble by 20 per cent in the first half of the year, which is far less than the 27 per cent it predicted in its May forecast.
But governor Andrew Bailey warned at the time against getting ‘carried away’ by signs the recession may not have been quite as steep as it expected, with the Bank launching another £100bn of quantitative easing (QE) to help boost the economy.
Haldane was the only one on the nine-strong monetary policy committee to vote against increasing QE in the June meeting.
In his speech, he said if the economy continues recovering on a similar path as lockdown measures ease further, then the loss in annual GDP could be far lower than first feared, at eight per cent against 17 per cent forecast in May.
But he cautioned some of this may be down to pent-up demand, as well as the massive government support for households and businesses through the scheme to furlough workers on 80 per cent pay.
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