The car industry’s hopes for a ‘V’ shaped recovery to the economy were lifted yesterday by the Bank of England.
In its first official outlook on the economy since the pandemic, the Bank warned we are likely to see the worst fall in 300 years.
However, the Bank of England governor Andrew Bailey said although it could take more than a year to recover, the recovery will be steep with ‘only limited scarring to the economy’.
A steep recovery would bolster the car industry as consumers get back on their feet faster and become more confident in buying cars.
There are fears that a bounce in car sales following lock-down could quickly be wiped out as consumers lose their jobs and hold on to their cash.
Bailey, who only took on the top job at the Bank 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.’
predicted percentage fall in economy in second quarter
News of the steep recovery was tempered by the fact the Bank is predicting an almighty crash by as much as three per cent in the first quarter and another 25 per cent in the three months to the end of June.
The Bank held interest rates at the historic low of 0.1 per cent and kept its quantitative easing (QE) programme to boost the economy unchanged at £645bn, after another £200bn of bond-buying in March.
Bailey said the Bank stood ready to support the economy further, though.
He said: ‘There’s a commitment and a determination to take action should we need to.’
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.
Boris Johnson will unveil his plans to begin easing the lockdown at 7pm on Sunday in an address to the nation. It is hoped he will allow some businesses, including car dealers, to go back to work in a limited fashion to start to get the economy moving again.
[How lockdown could be eased, 1:00 video:]
While the Bank is expecting annual GDP to soar back up 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.
Two members of the Monetary Policy Committee voted to increase QE by another £100bn in a sign that more may be on the way soon.
Samuel Tombs at Pantheon Macroeconomics said: ‘The case for the MPC to do more to support the economy looks strong.
‘Accordingly, we expect the doves to get their way and a further £100bn of QE to be authorised in June.’
Rates have already been slashed twice, from 0.75 per cent, since mid-March as part of the Bank’s measures to try and keep the economy afloat.
The Bank’s forecasts are slightly more optimistic than the outlook given by the Office for Budget Responsibility, which warned the economy could shrink by as much as 35 per cent by the end of the second quarter.
In its separate Financial Stability Report, the Bank said UK banks are strong enough to withstand the economic shock and continue supporting households and businesses.
It said it was in the interest of banks to keep lending, or face a wave of company bankruptcy that would leave them facing even steeper loan losses.
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