UK economy are affected extremely large hit from coronavirus

Credit;PA

Britain will suffer an “extremely large” hit to spending in the economy from the coronavirus lockdown – and monetary policy and Government actions cannot fully counterbalance the impact, a Bank of England policymaker has warned.

Silvana Tenreyro – among the Bank's nine Monetary Policy Committee (MPC) members – also cautioned the UK recovery is likely to be “less V-shaped than a single would like”, suggesting the bounce-back may not be as immediate as previously hoped.

In a speech broadcast online, she said the financial institution stood ready to “do whatever it can” to assist decrease the blow to households and businesses.

But she stressed monetary policy cannot “tackle such difficulties alone” and warned that even along with the Government's mammoth emergency support, there will still be rising unemployment and shrinking output.

Drop in spending

Ms Tenreyro said: “The data we have so far claim that the stop by aggregate spending already happening is going to be extremely large.”

She added: “Given the scale of the shock, it won't be possible to avoid further consequences for that economy.

“There will be a fall in employment where businesses fail or workers are made redundant.

“These occurrences should be ameliorated by the policy measures which have been set up, but will not be prevented in full.”

She stressed that without lockdown and restrictions put in place, gdp might have fallen sharply as Britons increasingly opted to remain at home.

“The fall in demand was clear in high-frequency indicators such as restaurant bookings and retail footfall, which fell sharply before the Government's decision to close restaurants and shops,” she said.

The Bank is forecasting inflation to fall below 1% from 1.7% currently within the next two months as fuel costs plunge thanks to crashing oil prices.

But while Britons will see rises within the living costs ease, they'll be knocked by falling wage growth, based on Ms Tenreyro.

She said: “Despite the insurance policy responses, we won't be able to avoid a boost in unemployment, which will weigh on real wage growth over the economy.”

While some firms will discover a increase in demand by providing alternatives, for example online food and grocery services to exchange cafes and restaurant, she said this is outweighed by the overall fall in spending because of falling incomes and consumer uncertainty.

She said: “Covid-19 is having unprecedented effects on all of our lives.

Economic disruption

“The MPC, co-ordinating closely along with other policymakers in the Bank and in government, is going to do whatever it may to minimise the economical disruption that the crisis could cause for households, businesses and financial markets.”

The Bank has slashed rates of interest to a different all-time historic low of 0.1%, from 0.75% previously, and unleashed another lb200 billion of quantitative easing (QE) among a raft of actions to assist the economy weather coronavirus.

But the Bank has already previously said hello sees little benefit in taking rates below zero, suggesting it'll have to look to more QE or radical options if further monetary support is required.

Ms Tenreyro admitted the MPC is within unprecedented territory with the current crisis.

“The nature from the economic shock from Covid-19 is extremely different from those to which the MPC has previously had to respond,” she said.